Preamble

The House met at a Quarter before Three of the Clock, Mr. SPEAKER in the Chair.

PRIVATE BUSINESS.

Sheffield Gas Bill [Lords],

Read the Third time, and passed, with Amendments.

Green Belt (London and Home Counties) Bill,

As amended, considered.

Motion made, "That Standing Orders 240 and 262 be suspended, and that the Bill be now read the Third time."—[The Chairman of Ways and Means.]

King's consent signified; Question put, and agreed to.

Bill accordingly read the Third time, and passed.

Salford Corporation Bill [Lords],

Read a Second time, and committed.

Middlesex County Council (General Powers) Bill [Lords] (by Order),

Read a Second time, and committed.

Pier and Harbour Provisional Order (Plymouth) Bill,

Read the Third time, and passed.

Land Drainage Provisional Order (Louth Drainage District) Bill (by Order),

Read a Second time, and committed.

Oral Answers to Questions — CHINA AND JAPAN.

Captain Alan Graham: asked the Prime Minister whether he will convey to the French Government an assurance that they will have the active assistance of His Majesty's Government in any measures they may consider necessary in order to restrain Japanese armed forces from endangering the security of French

Indo-China by an occupation of Hainan or adjacent islets?

The Under-Secretary of State for Foreign Affairs (Mr. Butler): His Majesty's Government and the French Government have, through their Ambassadors at Tokyo, made clear to the Japanese Government that they regard any occupation of Hainan by Japanese forces as calculated to give rise to undesirable complications. Should such complications unfortunately arise, His Majesty's Government and the French Government would no doubt afford each other such support as appeared to be warranted by the circumstances.

Rear-Admiral Sir Murray Sueter: asked the Prime Minister whether, in view of the great loss of life caused by the Yellow River flooding large areas in China and the recent statement made by General Ugaki, the Japanese Foreign Minister, to the effect that the possibility of negotiations for peace depends on the tendencies and attitude of Marshal Chiang-Kai-Shek, His Majesty's Government will do their utmost to obtain the support of the Government of the United States in making every endeavour to bring about a cessation of hostilities between Japan and China who are now in conflict but legally not at war with each other?

Mr. Butler: As I stated in answer to the hon. Member for West Leyton (Mr. Sorensen) on 21st June, the Japanese Minister for Foreign Affairs as recently as 17th June announced publicly that he did not think it possible for any Power to mediate between China and Japan. As the House is aware, however, His Majesty's Government would be only too ready, either alone or in conjunction with other Powers, to use their good offices at any time in helping to bring about a cessation of hostilities, if this were agreeable to both sides.

Sir John Wardlaw-Milne: asked the Prime Minister whether his attention has been drawn to the reorganisation of the Peking-Mukden and other railway systems in North China carried out by the Japanese, with results seriously adverse to British interests and British trade; and whether he will make strong representations through the British Ambassador at Tokyo against this action?

Mr. Butler: Yes, Sir. My Noble Friend's attention has been drawn to the reorganisation of these lines. He is in communication with His Majesty's Ambassador at Tokyo on the subject, but I am not for the moment in a position to make any statement.

Mr. Moreing: asked the Prime Minister the present position of the Chinese Customs service; whether the appointment of a superintendent of Customs in Shanghai by the provisional administration in Nanking has been confirmed yet; and what are the relations between this official and the properly appointed international personnel of the service?

Mr. Butler: The Chinese Customs service continues to take its orders from the Inspector-General, subject to certain limitations of his powers in the occupied areas. As I indicated in my reply to my hon. Friend on 16th May, there can be no question of the appointment of the Shanghai Superintendent of Customs being confirmed by the Inspector-General. I understand that the principal function of the superintendents has in recent years been to act as a channel of communication between the Commissioners of Customs at the various ports and the local territorial officials, and this holds good of the Superintendent of Customs at Shanghai.

Oral Answers to Questions — SPAIN.

Mr. Day: asked the Prime Minister what has been the result of the inquiries made by His Majesty's representative at Burgos with reference to the possibility of arranging for the release of the 177 British subjects held as prisoners of war by General Franco's administration; and will be give particulars of any progress that has been made on the subject?

Mr. Butler: Further progress has been made with a proposal that 100 of the British prisoners held by the Burgos authorities should be exchanged for 100 Italian prisoners in the hands of the Spanish Government. The Burgos authorities have agreed to this plan and the views of the Spanish Government are at present awaited. The too British prisoners concerned have been moved from San Pedro de Cardena, near Burgos, to Palencia.

Mr. Day: Will the Minister also make representations to see that the personal belongings and money which the people had when they were captured, are returned?

Mr. Butler: I will see that the hon. Member's suggestion is considered.

Mr. Leach: Who are the Burgos authorities, and where do they get their authority?

Miss Wilkinson: asked the Prime Minister what steps are being taken to see that the Portuguese frontier and the insurgent-controlled ports are as effectively closed to the passage of material as is the French frontier?

Mr. Butler: The efforts of His Majesty's Government are being directed towards effecting a restoration of the complete scheme of observation on land and sea in accordance with the Non-Intervention Committee's plan. This will apply equally to the ports and frontiers of both sides in Spain.

Miss Wilkinson: Seeing that the hon. Member has been giving pretty much that answer for the last 12 months, without any effect, and in view of the fact that the wastage of munitions cannot possibly be made up from home sources, is it not time that, having hermetically sealed the French frontier, they should see that something active is done in regard to the Portuguese frontier?

Mr. Butler: I have already reported considerable progress in the Non-Intervention Committee in regard to this matter.

Mr. Thurtle: Is it a fact that the Portuguese frontier is still open?

Mr. Butler: The scheme of observation has been suspended on the Portuguese frontier.

Miss Wilkinson: Does that mean that the Portuguese frontier is open, while the French frontier has been closed on direct representation from His Majesty's Government?

Mr. Butler: I cannot accept the case as represented by the hon. Lady, but the fact is that the French frontier has recently been closed, and some time ago the scheme of observation was suspended on all frontiers.

Miss Wilkinson: asked the Prime Minister what guarantees he has received from the Italian Government that no war material will be sent to Spain following this agreement; and will that apply to the aeroplanes which travel from Italian territory to bomb Barcelona, returning immediately?

Mr. Butler: It is proposed that the undertakings already given under the Non-Intervention Agreement will be reaffirmed in the draft resolution which is now under examination by the Non-Intervention Committee. As regards the last part of the question, I am not aware that Italian aeroplanes have acted in this manner, but the undertakings to which I have referred would in the opinion of His Majesty's Government undoubtedly cover such activities.

Miss Wilkinson: The hon. Member tells the House so often that they have received affirmation and re-affirmation of the Non-Intervention Committee's draft proposals, but when are they to be put into operation equally on both sides?

Mr. Butler: As I have stated recently, we have very considerable progress to report, and we hope that the scheme will be put into operation as soon as possible.

Miss Rathbone: Has the hon. Member seen the statement in the Rome and Berlin Press of yesterday, saying that the 17 ships that were sunk between 3rd and 24th June had been bombed by Italian aeroplanes of the Falchi type, and that they had come from the Balearic Islands? Does he want anything better than that to prove that they are Italian aeroplanes?

Mr. Butler: The question refers to aeroplanes coming from Italian territory.

Sir Percy Harris: Is the hon. Member aware that a fresh batch of pilots has been sent from Italy to Spain? Does that come within the arrangements of the Non-Intervention Committee?

Mr. Gallacher: Does the hon. Member mean that the Balearic Islands are not Italian territory?

Mr. G. Strauss: asked the Prime Minister whether it is his intention to pursue further the demand made to the Burgos authorities that strong disciplinary action should be taken against the crew

of the aircraft responsible for the deliberate attack on the "Thorpehall" off Valencia on 24th May?

Mr. Butler: The British Agent at Burgos has been instructed to inquire of the Burgos authorities what action they have taken in the matter.

Mr. Noel-Baker: Have His Majesty's Government made similar representations in regard to airmen who bombed other British ships in recent weeks?

Mr. Butler: I was asked a specific question, and I have given a specific answer.

Mr. Wedgwood Benn: Can the hon. Member say when the British Agent is expected back?

Mr. Butler: I presume when he has got the reply.

Mr. Benn: Does the hon. Member mean that he does not know when the British Agent is expected back?

Mr. Butler: He is expected directly he has the reply which we have asked him to get from the Burgos authorities.

Mr. G. Strauss: Does the hon. Member appreciate that it is about a month since the request was made, and does he realise that it looks very foolish in the eyes of the world that strenuous demands of this sort should be made month after month and no action taken to see that the demands are enforced, or that the outrages cease? Moreover, is the hon. Member aware that as a direct result of the action of His Majesty's Government two more ships have to-day been bombed and three more sailors murdered?

Mr. Cary: asked the Prime Minister whether he will inform British merchant shipping companies trading in Spanish waters that no obstacle will be placed in the way of British shipping companies who desire to equip their ships with suitable anti-aircraft guns of modem design for the purpose of warding off unprovoked attacks from any aeroplane engaged in the Spanish civil war?

Sir Walter Smiles: asked the Prime Minister whether there is any objection to shipowners who are sending their steamers to ports in Republican Spain arming these steamers with machine guns on anti-aircraft mountings?

The Prime Minister (Mr. Chamberlain): In reply to a question by the hon. Member for Derby (Mr. Noel-Baker), on 2nd June, reasons were given why His Majesty's Government did not desire to encourage such a measure. Further consideration of the suggestion has revealed additional difficulties and confirmed the view then taken by His Majesty's Government.

Mr. Cary: In view of the bombing and destruction of two British ships this morning at Alicante and Valencia, will not the Prime Minister indicate to the Non-Intervention Committee that the British Government would be prepared to co-operate in supplying British merchant ships with mountings for antiaircraft guns firing tracer bullets to deal with unprovoked attacks by aeroplanes flying low?

The Prime Minister: The British Government have considered this matter. A good many difficulties arise in connection with it, and I am informed that the fitting of merchant vessels with antiaircraft guns would require structural alterations.

Mr. Benjamin Smith: Did not the Prime Minister say last week that it was the duty of private owners to supply these anti-aircraft guns?

Sir W. Smiles: Is it not the case that the fitting of anti-aircraft mountings for machine guns is only a very light equipment?

Mr. Petherick: Can the Prime Minister say whether the mounting of such guns on British ships would not practically make them warships and would be an act of intervention?

Mr. Attlee: Are we to gather from the Prime Minister's answer that it is impossible now or at any time to fit antiaircraft guns on ships of the British Mercantile Marine? If so, will British merchant ships be defenceless against aircraft in the event of war?

The Prime Minister: No, Sir. That is not the reply.

Mr. Attlee: Will the Prime Minister explain why it is impossible to do it now?

The Prime Minister: I did not say it was impossible. I said that it could not be done without structural alterations.

Mr. Kirkwood: Arising out of the reply—

Mr. Speaker: We cannot have any more supplementaries on this question.

Mr. Garro Jones: asked the Prime Minister whether His Majesty's Government have addressed their attention to the terms upon which a truce or termination of hostilities in Spain may be brought about; and, if not, whether such proposals will now be prepared and set down as a basis of consideration for the combatant authorities and the interested Powers?

The Prime Minister: As I informed the hon. Member for West Leyton (Mr. Sorensen) on 14th June, His Majesty's Government will be ready to propose mediation either alone or in conjunction with other countries at any time when the prospects of successful action appear favourable.

Mr. Garro Jones: asked the Prime Minister whether any inquiry has been made of the head of the Italian Government as to whether he is prepared to associate himself with endeavours to bring about a truce or termination of hostilities in Spain; and, if not, whether he proposes to make any such request in the immediate future?

Mr. Butler: As I have previously informed the House, His Majesty's Government will gladly take any favourable opportunity to bring about a truce or the termination of the war in Spain either alone or in conjunction with others, and with this object in view they keep constantly in touch with the Italian and other foreign Governments whose cooperation might be helpful.

Mr. Garro Jones: Would it be a fair deduction from that answer, then, that the Government satisfied themselves that at the present time the Italian Government would not be prepared to associate themselves with any proposals for the termination of hostilities?

Mr. Butler: I am afraid I am not prepared at the present moment to add anything to the answer I have given.

Miss Rathbone: Would it not be better that any proposals for mediation should arise from Powers regarded as more impartial than either the Italian Government or His Majesty's Government?

Lieut.-Commander Fletcher: asked the Prime Minister whether he has obtained the views of the Spanish Government on the proposal put forward by General Franco for the establishment of neutral ports for British ships trading with Spain?

Mr. Butler: No, Sir. It will be remembered that this proposal originated from General Franco's administration, and it has first been found necessary to explore it further with that administration before approaching the Spanish Government.

Lieut.-Commander Fletcher: Is it intended to consult the Spanish Government before any affirmative decision is arrived at on this point?

Mr. Butler: Yes, Sir. It is our intention that the Spanish Government should be consulted in this matter.

Mr. Noel-Baker: asked the Prime Minister how many British ships have been sunk and how many others have been attacked on the high seas by General Franco's armed forces since 29th October, 1937?

Mr. Butler: Three British ships have been sunk on the high seas during this period, and three others attacked. One only of these cases occurred during the last four months.

Mr. Noel-Baker: asked the Prime Minister whether the recent agreement concerning the evacuation of foreign troops from Spain includes provision for measures of international control to prevent the introduction of foreign aircraft and air personnel into Spain?

Mr. Butler: As regards aircraft, I have nothing to add to the reply given on 1st June to a question by the hon. Member for East Wolverhampton (Mr. Mander). As regards air personnel, these fall under the category of foreign volunteers whom the countries parties to the Non-Intervention Agreement have already undertaken to prevent from proceeding to Spain.

Mr. Noel-Baker: Are we to understand that in the new arrangement nothing further has been done to control the introduction of air material?

Mr. Butler: No, Sir. If the hon. Gentleman will refer to my previous statement, he will see that we must await a

public statement from the Non-Intervention Committee before we can see what they have to say in this matter.

Duchess of Atholl: Are we to understand that the Non-Intervention Committee really is considering measures to prevent the introduction of foreign aircraft into Spain?

Mr. Butler: It is doing its best to find a method of doing so.

Mr. Benn: Does the hon. Gentleman mean that the proceedings of the Committee are so secret that Members of the House of Commons cannot be informed of them?

Mr. Butler: If the right hon. Gentleman had done me the honour of listening to my replies for some months past, he would have known that I have always said that their proceedings are confidential, but there is always a Press communique issued at the end of their meetings.

Mr. Cocks: It is the most ridiculous body in the world.

Miss Rathbone: asked the Prime Minister how many British ships have been sunk or damaged, and how many of the seamen serving on British ships killed or injured, since his warning to the Burgos authorities that a continuance of such practices must interfere with the friendly relations between them and the British Government; and in what form he intends to implement this warning?

Mr. Butler: Since the Prime Minister's statement on 14th June, two British ships have been sunk, one seriously damaged and three slightly damaged, while two men serving aboard British ships have been killed and two slightly injured. As regards the last part of the question, I have nothing to add to the speech of the Prime Minister on 23rd June.

Mr. G. Strauss: Can the Minister say whether there is any precedent for a Government in this country to insist that a foreign Government should take a certain line or desist from certain actions, and then not to follow it up by any effective action?

Mr. Butler: On the contrary, we have followed up every single case to the best of our ability, and the Prime Minister has repeatedly announced the recent steps which the Government have decided on.

Vice-Admiral Taylor: What is meant by the expression "at their own risk" when these ships are warned before entering Spanish territorial waters?

Miss Rathbone: asked the Prime Minister whether, as the port of Gandia is purely British property, cannot be regarded as a military objective and could not be bombed otherwise than deliberately, His Majesty's Government will provide it with anti-aircraft guns or some other form of protection?

Mr. Butler: The port of Gandia is leased to a British company, but it remains part of the territory of Spain. If, therefore, His Majesty's Government provided antiaircraft protection for the port, this would amount to sending British forces to protect British property in a foreign country where a state of war exists, and would be taking part in the war which, as the Prime Minister has frequently explained, His Majesty's Government are not prepared to do.

Miss Rathbone: Was not the Prime Minister's objection to sending warships in general circumstances that any guns they might fire would be confused with an attack upon military objectives, and why should not warships be sent with anti-aircraft guns?

Mr. Poole: Does the hon. Gentleman mean to infer that it would be establishing a precedent to send British forces to protect British property in a foreign country in a war?

Mr. Butler: The port of Gandia is part of the territory of Spain, and what I said was that to send British forces to protect British property in a foreign country where a state of war exists would mean taking part in that war.

Mr. Attlee: How is it that British warships are on the Yangtse-kiang?

Mr. Butler: If the right hon. Gentleman refers to China, there the position is different, because at various places we have Treaty rights.

Mr. A. V. Alexander: Will not the Under-Secretary compare this case that is put by the hon. Member with the announcement in the Press that the Italians propose to protect Italian property in the Balearic Islands during the

war in Spain? Why cannot the British Government take equal steps, if the Italians can, to defend its nationals?

Mr. Butler: I am proud to answer for the British Government on all these questions.

Mr. Leach: On a point of Order. I desire to call your attention, Sir, to the next three questions. The first two contain a reference to "the Minister for Foreign Affairs in nationalist Spain," and the third contains a reference to the "nationalist troops." In my submission, the only Government in Spain that is entitled to possess a Foreign Minister or to have the word "nationalist" applied to it, is the Government with which we, despite certain evidence to the contrary, are in friendly relations. These three questions must, therefore, constitute an affront to the established Government in Spain.

Mr. Speaker: That is not a point for me.

Brigadier-General Sir Henry Croft: asked the Prime Minister whether his attention has been called to the official statement of the Minister for Foreign Affairs in nationalist Spain that 12 towns in the Bielsa zone were totally destroyed by systematic incendiarism and that 2,000 families in that district have been left homeless and robbed of their cattle; and whether any steps will be taken to condemn these assaults on the property of civilians by armed men prior to their escape into France?

Mr. Butler: While His Majesty's Government deplore the sufferings caused to the Spanish people during the civil war, they do not feel able to pass judgment on particular incidents where the facts of the case are by their nature very difficult to establish.

Sir H. Croft: In view of the proposal, which is welcomed in all parts of the House, that an international committee should visit Republican territory in Spain with reference to bombing outrages, could not such a committee also visit the spots where recent happenings have occurred with such disastrous results to the poor peasants?

Mr. Butler: I do not think that at this stage we can enlarge the terms of reference of the proposed Commission.

Mr. G. Strauss: Is the hon. Gentleman aware that this story was issued by the Burgos authorities one or two days before Franco's troops entered Castellon?

Sir H. Croft: asked the Prime Minister whether his attention has been called to the official statement of the Minister for Foreign Affairs in Nationalist Spain that the president of the provincial council in Castellon had 600 persons assassinated just prior to evacuation; and will any steps be taken to express abhorrence at such barbarity?

Mr. Butler: His Majesty's Minister at Barcelona has been asked to furnish a report on this matter.

Sir H. Croft: asked the Prime Minister whether he is aware that a premature relief of Castellon was deliberately staged by the Republican authorities in Castellon, and 2,000 of the civilian population who welcomed what they imagined were Nationalist troops were then killed by the fire of militiamen, their bodies being subsequently found by the Nationalist army; and what steps he proposes to take by way of protest to the Republican Government.

Mr. Butler: I have not up to the present received any information on this matter.

Mr. Thurtle: On a point of Order. May I draw your attention, Sir, to the fact that this question contains a very vile suggestion against the troops of Republican Spain? May I suggest to you that no question of this kind should be allowed to be put on the Order Paper unless it is absolutely proved that it is well-founded?

Mr. Speaker: The hon. Member must remember that in questions many suggestions are made.

Sir Archibald Sinclair: Further to that point of Order. Surely, it is very unusual that in a question an allegation should be made that the troops of a friendly Power have, in fact, organised a massacre of their own subjects in their own country? Surely, that is a quite exceptional and outrageous use of the Order Paper of this House.

Mr. Garro Jones: Further on that point of Order. May I also draw your attention, Mr. Speaker, to the fact that the question on the Order Paper refers to action by "the republican authorities,"

which presumably applies to the Spanish Government, with which we are in friendly relations; and would it not be wise to disallow questions of this extremely partial and provocative nature, which are contrary to every rule, tradition and practice governing questions in this House?

Mr. Gallacher: In view of the fact that every Member in this House understands that the statement in this question is a sheer fabrication, can nothing be done about it?

Sir H. Croft: Arising out of the reply, may I ask my hon. Friend whether he will take steps to make immediate inquiries?

Mr. Benn: On a point of Order. Would it commend itself to you, Mr. Speaker, to inquire from the hon. and gallant Member for Bournemouth (Sir H. Croft) whether he is prepared to accept personal responsibility for the statements that appear in the question?

Mr. Speaker: There are so many statements made from all sorts of sources by hon. Members in questions that I am not sure whether any hon. Member would be prepared to accept responsibility for them, and I am afraid that I cannot do anything in the matter further than asking that hon. Members themselves should exercise care in the framing of their questions.

Mr. Benjamin Smith: Is this not a case of an assertion rather than a question?

Sir H. Croft: On a point of Order. May I be permitted to say that this was an official statement from a Government official? [HON. MEMBERS: "Which Government?"] One of the Governments.

Mr. Speaker: I think there is really nothing more to be said about it.

Mr. Garro Jones: May I, with the greatest respect, submit to you, Mr. Speaker, that it is desirable that the long established practice which governs the putting of questions on the Order Paper of the House should not be frittered away by failure to give definite Rulings, when such Rulings are called for. I, therefore, wish to ask specifically whether it is or is not in order for an hon. Member to place on the Order Paper a question imputing a treacherous and base action to a Government and the officials of a Government


with which we are in friendly relations; and if that is not in order can the hon. and gallant Member for Bournemouth (Sir H. Croft) be requested to withdraw his question in its present form?

Mr. Churchill: Further to that point of Order. Will you, Sir, bear in mind the great importance of preserving a wide latitude in Parliamentary Questions?

Mr. Speaker: If the hon. Member for North Aberdeen (Mr. Garro Jones) is finding fault with me in the discharge of my duties, in saying that I have not given a definite Ruling, I would point out that the Ruling which I have given on this matter is that all Members of the House should be careful in framing their questions so as to avoid giving offence to friendly Governments. That applies to all, and if that were carried out by all parties there would be no trouble.

Mr. Thorne: Have you not power, Mr. Speaker, to veto any question which you think is wrong?

Mr. Speaker: Do hon. Members wish me to exercise that power to the fullest extent?

Oral Answers to Questions — LAKE TSANA.

Mr. Gallacher: asked the Prime Minister whether any agreement has been entered into between His Majesty's Government and the Government of Italy regarding the use of the waters of Lake Tsana for the irrigation of the Sudan; if so, for what period the agreement runs; and what are the financial commitments entered into by the British Government thereby?

Mr. Butler: No agreements of any kind have been entered into between His Majesty's Government and the Italian Government with regard to Lake Tsana other than the Treaty of 13th December, 1906, between the United Kingdom, France and Italy (Cmd. 3298), the notes exchanged on 14th–20th December, 1925, between His Majesty's Government and the Italian Government (Cmd. 2680), and Annex 5 to the Protocol signed at Rome on 16th April, 1938 (Cmd. 5726). The second and third parts of the question do not, therefore, arise.

Mr. Gallacher: Arising out of the many manoeuvres of the Government—

Mr. Speaker: The hon. Member must not put supplementary questions in that form.

Mr. Gallacher: I want to know whether we can have an assurance that any discussions which take place on the question of Lake Tsana will not be used for the purpose of supplying the Italians with finances for other purposes?

Mr. Butler: I can only refer the hon. Member to the provisions of Annex 5, to which I have referred, that the Italian Government are fully conscious of their obligations towards the Government of the United Kingdom in the matter of Lake Tsana, and have no intention of overlooking or repudiating them.

Mr. Benn: What is the status of the older agreement of 1906 and other agreements? Are they still valid after the conquest of Abyssinia?

Mr. Butler: I must refer the right hon. Gentleman to the terms of my answer.

Oral Answers to Questions — CZECHOSLOVAKIA.

Mr. G. Strauss: asked the Prime Minister whether, in view of the grave anxiety caused by Dr. Goebbels' statement on 21st June to the effect that it had been seen in Austria that one race cannot be separated into two countries and that it would soon be seen somewhere else, he will ask the German Government to give an assurance that they are not contemplating any action comparable to their seizure of Austria?

Mr. Butler: While His Majesty's Government naturally deprecate any public statements likely to render more difficult the negotiations now in progress in Prague, I understand that the statement attributed to Dr. Goebbels by the hon. Member does not appear in the official report of his speech. As I informed the House on 23rd May, the German Minister for Foreign Affairs has stated that the German Government fully share the desire of His Majesty's Government to see these negotiations succeed.

Mr. Strauss: As these words are quoted verbatim in the report of the "Times" Berlin correspondent, surely it is desirable when something is threatened which may cause a European


war, that His Majesty's Government should make inquiries as to what is really meant?

Mr. Butler: Equal importance should be attributed to the fact that this statement does not appear in the official report.

Mr. Gallacher: Is it not notorious that they cook their official report for home consumption?

Oral Answers to Questions — FRANCE AND ITALY.

Mr. Arthur Henderson: asked the Prime Minister whether, in view of the Anglo-Italian Agreement and the importance of maintaining close co-operation between Great Britain and France, His Majesty's Government have represented to the Italian Government the importance of resuming negotiations with France?

Mr. Butler: His Majesty's Government would welcome an improvement in the relations between France and Italy such as might be expected to follow a resumption of the negotiations between the two countries. The Italian Government are fully aware of our views on this question. At the same time it will be appreciated that this is a matter which can only be settled between the parties concerned.

Mr. Henderson: Is it not a fact that the Anglo-Italian Agreement will be completely worthless unless Italy puts her relations with France on a satisfactory basis?

Mr. Butler: As I have said in my answer, we should welcome improved relations between France and Italy.

Oral Answers to Questions — ARMAMENTS LIMITATION.

Mr. A. Henderson: asked the Prime Minister whether he is aware that the United States Secretary for War has repeated Mr. Cordell Hull's offer, on behalf of the United States Government, to co-operate with other nations with a view to securing an international agreement for the limitation of aerial bombardment; and whether His Majesty's Government will take the initiative and convene a conference for the purpose of securing such international agreement?

The Prime Minister: I understand that the United States Secretary for War, in

a speech on 22nd June, stated that the United States were ever ready to cooperate with other nations for definite and permanent reductions and limitations in armaments. With regard to the views of His Majesty's Government on this matter I have nothing to add to my recent statements and, in particular, to the reply which I gave the hon. Member on 22nd June.

Mr. Henderson: As someone has to take the initiative in this matter, will not His Majesty's Government set the example by convening such a conference, or are we to be satisfied with speeches from both sides of the Atlantic?

The Prime Minister: If we think a favourable opportunity presents itself and such a conference is likely to have a successful result, we shall be ready to do what we can.

Mr. Thorne: Is it below the dignity of the right hon. Gentleman to make an effort to get such a conference together?

Oral Answers to Questions — GIBRALTAR (TERRITORIAL WATERS).

Mr. Garro Jones: asked the Prime Minister whether His Majesty's Government have now arrived at a definition of British territorial waters off Gibraltar, and whether he will communicate that definition to the House?

Mr. Butler: The position of His Majesty's Government in this matter has undergone no change, and the second part of the question does not, therefore, arise.

Mr. Garro Jones: Is it not the case that territorial waters at Gibraltar have never been defined, if so, what advantage is it that the attitude of His Majesty's Government has undergone no change? Is it not desirable that the attitude of the Government should be clarified and should undergo the change of defining these territorial waters?

Mr. Butler: The question raises a good many considerations, and perhaps the hon. Member will discuss the matter with me.

Oral Answers to Questions — REFUGEES.

Miss Rathbone: asked the Prime Minister whether the Chancellor of the


Duchy of Lancaster and Mr. C. M. Palairet, when representing His Majesty's Government at the Evian Conference, will be accompanied by any experts on refugee work or representatives of the Government Departments concerned; and, if so, will he state the names of these persons?

Mr. Butler: Yes, Sir. The United Kingdom delegates will be accompanied by appropriate expert advisers. The composition of the delegation has not yet been finally settled.

Miss Rathbone: In view of the known pro-Arab sympathies of the Chancellor of the Duchy of Lancaster—

Mr. Speaker: Order. That, again, is not the way to put a supplementary question.

Lieut.-Commander Fletcher: asked the Prime Minister whether he has yet received from the Secretary-General of the League of Nations the report of the committee appointed to draw up a plan for international assistance to refugees?

Mr. Butler: The detailed plan which the Secretary-General of the League of Nations was instructed to draw up after consultation with the President of the Governing Body of the Nansen Office and the High Commissioner for Refugees coming from Germany has not yet been received.

Lieut.-Commander Fletcher: Does the hon. Gentleman propose to ask the Secretary-General when this report may he expected?

Mr. Butler: I cannot say at present when it is expected, but we certainly hope that it will be expedited as far as possible.

Oral Answers to Questions — LONDON MUSIC FESTIVAL.

Sir Joseph Leech: asked the Secretary to the Overseas Trade Department whether, in relation to the "Come-to-Britain" movement, any steps are being taken to organise a British musical centre at Bath or any other suitable English city, or Glyndebourne, so as to meet the requirements of distinguished international musicians, British music lovers, and overseas tourists who prefer not to attend Salzburg and other Central European musical festivals?

Mr. R. S. Hudson (Secretary, Overseas Trade Department): I understand that the leading musical interests in Britain, with the collaboration of the Travel Association and other bodies, are organising a London Music Festival in the spring of 1939, which it is hoped will become an annual event, and will attract music lovers from overseas.

Oral Answers to Questions — GERMANY (ECONOMIC CONDITIONS).

Mr. Bellenger: asked the Secretary to the Overseas Trade Department whether it is proposed to publish a biennial report this year on economic conditions in Germany by the commercial counsellor to His Majesty's Embassy in Berlin?

Mr. R. S. Hudson: No, Sir.

Mr. Bellenger: Will the right hon. Gentleman give any reason for that, in view of the fact that the last report was greatly appreciated by commercial and other interests in this country?

Mr. Hudson: Yes, Sir. These economic reports are not published at fixed intervals, but in certain cases as occasion requires. I do not think that this is a particularly good year in which to have a report on Germany, but I will certainly consider the advisability of publishing a report next year.

Oral Answers to Questions — CROWN LANDS, REGENT STREET (GROUND RENTS).

Sir William Davison: asked the Minister of Agriculture whether his attention has been called to the decision permitting a reduction of ground rent in respect of certain Crown land property leased to Rex and Regent Theatre Company, Limited, for use as offices, from £1 to 15s. per square foot, approximately; and whether, in view of the hardship to those who provide and let offices in the building on the adjacent site, where the ground rent charged averages 21s. per square foot, the Commissioners of Crown Lands will consider a similar reduction of ground rent in respect of this latter site?

The Minister of Agriculture (Mr. W. S. Morrison): The effective ground rents in the former of these cases are considerably higher than the amounts stated, and the


circumstances are entirely different from those obtaining in the latter case. In the former case an alteration was made in the authorised user of the premises, and consequently in the rate of ground rent, before new buildings were erected or the lease signed, in consideration of the fact that unforeseen circumstances would inevitably prevent the lessee from carrying out his proposed contract. In the latter case the building was erected and the lease signed a number of years ago, and no ex gratia remission of the legal ground rent could, therefore, be considered save in accordance with the general scheme of relief to Regent Street tenants which was explained in my answer of 25th May to my hon. Friend the junior Member for Brighton (Sir C. Rawson) and which only applies to ground rents exceeding 25s. per square foot.

Sir W. Davison: Is the right hon. Gentleman aware that the ground rents attached to these new leases in Regent Street were adjusted in the boom period after the War and bear no relation to the rack rents of these premises; and will he be good enough to have an independent committee set up to inquire into the whole matter?

Mr. Morrison: This matter was recently reviewed with the assistance of an informal committee of Members of this House, and I see no reason at the present time to re-open it.

Mr. Macquisten: Are not the ground rents charged on Crown lands a public scandal? No private landlord would ever charge them.

Oral Answers to Questions — AGRICULTURE.

MARKETING BOARDS.

Mr. De la Bère: asked the Minister of Agriculture whether he will consider taking steps to reorganise the existing marketing boards to bring about not a limitation of production but a reduction of distributing costs and an increase of home-farming output?

Mr. W. S. Morrison: Marketing boards set up by producers under the provisions of the Agricultural Marketing Acts can exercise only such powers as are contained in their respective schemes each of which has been approved by Parlia-

ment, and I have no power to reorganise the boards as suggested by my hon. Friend, even if I considered such action. desirable. Provisions designed to assist in reducing costs of production and distribution are contained in the Agriculture Act, 1937, and in the various commodity measures already brought forward and proposed by the Government.

Mr. T. Williams: Is it not the case that after every marketing scheme set up by the National Government, the price of the commodity to the consumer has increased; and does not that imply that, instead of being marketing schemes, they are mere price-fixing schemes?

Mr. Morrison: I do not think that is a correct statement. I think the price of bacon to-day is cheaper than it was before the marketing board was set up.

Mr. Williams: Is not the statement in the first part of my question correct that the price of every commodity now dealt with by marketing boards is higher to-day to the consumer than it was before the marketing schemes?

Mr. Morrison: It would be necessary to examine each commodity by itself to see what the exact figure was in relation to it, but I would call the attention of the hon. Member to the fact that the period immediately preceding the setting up of marketing schemes was a period of slump, which brought great unemployment and misery to primary producers all over the world.

Mr. George Griffiths: Will the Minister ask his wife at breakfast-time to-morrow morning about the price of bacon and she will tell him that it is up?

Mr. Morrison: I will make that inquiry.

GOVERNMENT POLICY.

Mr. De la Bère: asked the Minister of Agriculture what further steps the Government are taking to increase the acreage under cultivation and the yield per acre to the maximum obtainable as part of Britain's Defence measures?

Mr. W. S. Morrison: The whole agricultural policy of the Government, including, in particular, the various schemes comprised in the Agriculture Act of last Session, is designed to improve the fertility of the soil, to stimulate arable and grassland cultivation, and to increase the yield per acre.

Mr. De la Bère: What active steps is my right hon. Friend taking to increase this home acreage as part of the Defence scheme?

Mr. Morrison: That is merely a repetition of the question on the Paper, and I see no reason why I should answer it again. My hon. Friend will see the answer in the OFFICIA1, REPORT tomorrow.

Mr. De la Bère: But is my right hon. Friend aware that his answer was wholly unsatisfactory?

Mr. de Rothschild: Is the right hon. Gentleman aware that this question is closely related to the question of agricultural credit, and will he inquire into the rates of interest that are being charged at the present time for facilities to farmers, as the yield per acre depends a great deal upon this?

Mr. Morrison: The matter is one of general agricultural policy, and there are many factors in it, including that referred to by the hon. Member.

Mr. T. Williams: Will the right hon. Gentleman tell the House exactly what means he employs to ascertain whether or not the land is being put to the best possible agricultural use?

Mr. Morrison: That is a different question. Perhaps the hon. Member will put it down.

Mr. Macquisten: Does my right hon. Friend not realise that farmers are harassed by filling up forms from weekend to week-end?

POTATOES.

Mr. Morgan: asked the Minister of Agriculture the approximate amount of potatoes bought and sold by the Potato Marketing Board during the years commencing 1st August, 1935 and 1936, respectively, and during the nine months ended 20th April, 1938, distinguishing, if possible, between potatoes sold for human consumption or for other purposes?

Mr. W. S. Morrison: As the reply contains a number of figures, with my hon. Friend's permission I will circulate it in the OFFICIAL REPORT.

Following is the reply:

I am informed by the Potato Marketing Board that during the years beginning

1st August, 1935 and 1936, respectively, 3,502 tons and 4,972 tons of potatoes were bought and disposed of by the board for purposes other than human consumption. In the second of these years an additional 45 tons were bought and sold for human consumption. During the nine months ended 30th April, 1938, the board completed transactions for the purchase and sale of 19,209 tons of potatoes, of which 13,738 tons were sold for human consumption and 5,471 tons for other purposes. A further quantity of potatoes bought during this period, amounting to 15,754 tons, was sold for human consumption after 30th April.

WHEAT.

Brigadier-General Clifton Brown: asked the Minister of Agriculture what was the amount of wheat fed to stock or used on farms and the amount of wheat sold off farms in 1936 and 1937, respectively?

Mr. W. S. Morrison: Sales of wheat in the last two completed cereal years credited to growers in England and Wales under the Wheat Act, 1932, amounted to 1,558,000 tons in 1935–36, and 1,118,000 tons in 1936–37. Such sales represent the bulk of the wheat sold off farms in those years. I am not in a position to state the quantities of wheat fed to stock or used on farms in these years in the absence of information regarding the amount of wheat purchased by farmers for these purposes.

Brigadier-General Brown: In the case of his defence measures, has my right hon. Friend calculated the amount of wheat that is required on farms?

Mr. Morrison: Yes, we have made the best calculation we can.

Mr. T. Williams: Can the right hon. Gentleman state what is the proportion of the wheat consumed on the farms themselves which was regarded as of millable quality?

Mr. Morrison: No; I could not give the exact proportion without notice.

Major Macnamara: asked the Minister of Agriculture whether legislation to set up the standard price committee for wheat will he introduced before the Recess; and, if there is any delay, will he give an assurance that the decisions of this committee will operate retrospectively?

Mr. Morrison: As regards the first part of the question, I would refer my hon. and gallant Friend to the reply given on 14th June to my hon. Friend the Member for Devizes (Sir P. Hurd) and to my hon. and gallant Friend the Member for Tiverton (Lieut.-Colonel Acland-Troyte). I regret that I am unable to give the assurance referred to in the second part of the question.

Major Macnamara: asked the Minister of Agriculture how much of the wheat used annually in Britain is produced at home?

Mr. Morrison: Over the five years 1933–37, it is estimated that home produce accounted for approximately 24 per cent. of the total wheat supplies available for consumption in the United Kingdom.

Major Macnamara: Is it the policy of the Government to increase the home production of wheat as much as possible?

Mr. Morrison: Yes, Sir, and there has been an increase in the acreage under wheat since 1931 of over 50 per cent.

Captain Sir Derrick Gunston: What percentage of the increase in the consumption of wheat was grown since the Act has been in force?

Mr. Morrison: I should have to work that out, and if my hon. and gallant Friend will give me notice, I will do so.

Viscountess Astor: How much has it cost the country to get the extra production of wheat?

Mr. Morrison: That is another question.

LAND DRAINAGE ACT (HORNCASTLE AND DISTRICT).

Mr. Henry Haslam: asked the Minister of Agriculture whether he is aware of the continued resistance to the payment of rates by land drainage ratepayers of Horncastle and district, where these rates have risen from 1d. in the £ to some 2s. 6d., owing to the operation of the Land Drainage Act, 1930, without any corresponding benefit to the ratepayers concerned; and whether he is in a position to bring about any alleviation of this burden?

Mr. W. S. Morrison: My hon. Friend has sent me a newspaper cutting on this subject. As I have indicated to my hon.

Friend, in reply to previous questions, any steps that could effect a reduction in the amount of these rates would have to be taken by the drainage authorities concernd, whose attention I have called to their powers in the matter.

Mr. Haslam: While thanking my right hon. Friend for his answer, may I ask him whether his promise, made early in the Session to amend this Act, is being prosecuted?

Mr. Morrison: I said early in the Session that we wished to amend the Act as soon as possible, and I am at present receiving representations from the various bodies interested as to the Amendments which they think are desirable.

LAMB PRICES, EAST ANGLIA.

Major Macnamara: asked the Minister of Agriculture whether he is aware that lamb in East Anglia is being sold by farmers at below pre-war prices; that the price of feeding-stuffs has risen by 50 per cent. and of labour by 100 per cent. since 1914; and what is the Government's policy in this connection?

Mr. W. S. Morrison: I am aware that the price of fat lambs has recently fallen and that prices of feeding-stuffs, and farm workers' wages, are higher than in prewar years. My information is, however, that lamb prices in East Anglia have not, on the whole, fallen below the pre-war level, and that the increase in feeding costs is considerably less than my hon. and gallant Friend suggests. With regard to the last part of the question, I have explained in reply to previous questions that consultations are taking place with the principal overseas suppliers on the subject of imports of mutton and lamb. Feeding-stuffs prices are, in general, governed by world conditions, over which the Government have no control.

Sir Joseph Lamb: Is it not a fact that retail prices charged for mutton and lamb in the shops have not fallen in comparison with the wholesale prices, and that consequently the public are not getting the benefit?

Mr. Morrison: That is another and a very big question. There is always a lag between the movement of retail prices and that of wholesale prices.

Mr. T. Johnston: In his discussions with overseas suppliers of mutton and Iamb, will the right hon. Gentleman also include discussions on wool?

Mr. Morrison: Yes, Sir. The price of wool is a very relevant factor in the price of sheep at the present time.

Major Whiteley: Will my right hon. Friend remember that this matter is extremely urgent, that it is one which affects not only East Anglia but farmers engaged in the fat sheep and lamb trade all over the country, and that the sooner some action is taken the better?

Mr. Morrison: I am quite aware of the importance of the question.

IMPORTED TURKEYS (MARKING).

Brigadier-General Brown: asked the Minister of Agriculture whether he is aware that imported turkeys, as to which the Merchandise Marks (Imported Goods) No. 5 Order, 1934, applies, are often exposed for sale without any marking and are, in consequence, not infrequently bought as English birds; that prosecutions by local authorities frequently take place; and whether he will consider a more effective method of marking them to make this practice impossible?

Mr. W. S. Morrison: I have no evidence that there is any general evasion of the requirements of the Order to which my hon. and gallant Friend refers. The fact that, since its introduction in 1934, a number of traders have been prosecuted for failure to comply with its provisions indicates that the local authorities concerned are aware of their responsibilities in regard to its enforcement. With regard to the last part of the question, I have no power to amend the prescribed method of marking imported turkeys. An alteration of the relevant provisions of the Order could only be effected upon the recommendation of the Standing Committee appointed under the Merchandise Marks Act, 1926, after a public inquiry into an application for the amendment of the Order.

Brigadier-General Brown: In view of the fact that the Council of Agriculture in England the other day passed a resolution giving the evidence which the Minister says he has not got, surely there is evidence about the unsatisfactory way in which the Order is being carried out?

Mr. Morrison: I was present at the discussion to which my hon. and gallant Friend referred, arid my information is as I have stated it. I have no evidence of widespread infringement of the Order, and the fact is that local authorities are on the whole very eager to prosecute when they have any evidence on which to found a prosecution.

Oral Answers to Questions — POST OFFICE.

CASH-ON-DELIVERY SERVICE.

Mr. Day: asked the Postmaster-General whether the cash-on-delivery service is meeting with the success which was contemplated; and is any reduction in the scale of fees being considered?

The Assistant Postmaster-General (Sir Walter Womersley): I am glad to say that the inland cash-on-delivery service appears to meet the demands of the public. The numbers of cash-on-delivery parcels and packets posted have increased from 1,093,000 in 1926–27, to 2,726,000 in 1937–38. The great majority of these are parcels. I regret I cannot hold out any hope at present of a reduction in the fees.

Mr. Day: Can the hon. Gentleman say whether small parcels of agricultural produce are accepted for delivery in this way?

Sir W. Womersley: Yes, Sir. We do all we can to encourage agricultural produce being sent in this way.

CANCELLATION STAMPS.

Sir Ronald Ross: asked the Postmaster-General on how many occasions in the last 10 years cancellation stamps assisting the trade of certain areas in the United Kingdom, such as that advertising the Glasgow Exhibition, have been applied to letters originating in Northern Ireland?

Sir W. Womersley: It is not the practice to use official cancellation stamps to assist particular areas, whether for trade or other purposes, and so far as I can trace the only exception to this rule in the last 10 years has been the case of the Newcastle-on-Tyne Exhibition in 1929, before the policy had been rigidly defined. The cancellation stamp for the present Empire Exhibition at Glasgow was allowed, because the exhibition is of an


Imperial character. A cancellation stamp for the British Industries Fair is also allowed for a short period each Spring.

Sir R. Ross: asked the Postmaster-General whether a cancellation stamp specifically assisting the trade of Northern Ireland has ever been in use in any part of the United Kingdom?

Sir W. Womersley: I am not aware of any case.

Mr. De la Bère: Will my hon. Friend consider doing something for agriculture in the Vale of Evesham?

SCILLY ISLANDS (MAIL SERVICE).

Mr. Keeling: asked the Postmaster-General how often mails are sent to the Isles of Scilly and by what means; and why the air service which plies between Penzance and the Isles several times a day is not used?

Sir W. Womersley: Mails to and from the Scilly Islands are conveyed by steamship at least three times weekly from February to October inclusive and at least twice weekly from November to January inclusive. Additional trips are provided during the summer holiday season. I am not aware of any substantial public demand for an air mail service.

Mr. Keeling: Will my hon. Friend give an assurance that the fact that the steamships are in Scillonian ownership is not responsible for the neglect of the air service?

Sir W. Womersley: If the people of the Scilly Islands ask for their mails to be sent by air, we shall be pleased to comply with the demand, but we understand that the fear is that if we take away the mail service from the steamers, they will not have such a regular steamer service as the islands require for travelling and carrying produce.

Mr. Robert Gibson: Will the hon. Gentleman use his influence for the setting up of a similar air service between Greenock and the Western Islands?

JUSTICES OF THE PEACE (EXPENSES).

Mr. Kirkwood: asked the Attorney-General whether he will consider the hardship caused to many magistrates who,

being working men or wives of working men, suffer loss of wages and time, are put to considerable expense when attending courts, and are often unable to attend to some of the duties expected of them on the ground of expense; and whether he will take steps to enable repayment to be made to all magistrates of their out-of-pocket expenses, as is already done in the case of baillies in Scotland?

The Attorney-General (Sir Donald Somervell): My noble Friend the Lord Chancellor does not consider that circumstances would justify the change suggested.

FURNITURE TRADES, LONDON (DISPUTES).

Mr. McEntee: asked the Minister of Labour whether he is aware of the excessive hours of employment now being worked in furniture factories situate in North and East London, who are not parties to the agreement governing conditions and wages in the furniture industry; and, in view of the unfairness of this form of sweated labour and its effect in increased unemployment, will he take steps to abate this evil?

The Parliamentary Secretary to the Ministry of Labour (Mr. Lennox-Boyd): I am aware that a number of disputes arising out of the working conditions in operation have occurred recently at factories of firms not members of the London Furniture Trades Federation. I understand that consideration is being given to the position, by the organisations of employers and the trade unions. The Department will continue to keep in touch with the position and to render any assistance that may be possible.

Mr. McEntee: Will the hon. Gentleman convey to firms where disputes are taking place that the Government think it most unfair of employers and detrimental to the health of the workers to continue to work these excessive hours?

Mr. Lennox-Boyd: I am certainly prepared to convey to employers and trade unions the fact that a satisfactory agreement will be much approved of by the Department.

Mr. H. G. Williams: Is there a trade Board in existence for this industry?

Mr. Lennox-Boyd: No, Sir.

ELEMENTARY EDUCATION (GRANTS).

Mr. Lipson: asked the Parliamentary Secretary to the Board of Education whether he is now able to state the result of the discussions that have taken place with representatives of the Association of Education Committees on the question of the amount of grant payable to local authorities for elementary education?

The Parliamentary Secretary to the Board of Education (Mr. Kenneth Lindsay): The discussions are still proceeding and the Board's officers are awaiting the comments of the representatives of the local education authorities upon certain information and suggestions which have been laid before them.

Mr. Lipson: When will information on the result of these conversations be available to Members of this House?

Mr. Lindsay: I would not like to give a promise. It is a complicated matter.

JUSTICES ADVISORY COMMITTEE, LIVERPOOL.

Mr. Logan: asked the Chancellor of the Duchy of Lancaster whether, following on his reconstruction of the Justices Advisory Committee in Liverpool, he intends to follow this procedure throughout the duchy, particularly in excluding political leaders from these committees?

The Chancellor of the Duchy of Lancaster (Earl Winterton): I do not intend any general reconstruction of advisory committees in the County Palatine: when in the case of individual committees additional appointments or reconstruction become necessary, it is my duty to select the committee which in my opinion is most suitable collectively to carry out its semi-judicial functions and most likely to frame its recommendations to me in the light of the report of the Royal Commission upon the Selection of Justices of the Peace: it will not be my practice necessarily either to exclude any gentleman from or on the other hand to include them in, my appointments to advisory committees on the ground that they are local political leaders.

Mr. Kelly: May I ask the Noble Lord why he has departed from his usual practice of excluding Members of Parliament from these advisory committees by

placing a Member of Parliament on this particular committee?

Earl Winterton: The hon. Gentleman is mistaken in thinking that Members of Parliament are not on advisory committees. I extended an invitation only the other day to an hon. Gentleman on that side of the House to serve on such a committee.

Mr. Logan: Where political leaders are not placed on these committees, who advises the Chancellor?

Earl Winterton: I advise myself. I choose the committee best calculated to give me advice to enable me to perform my functions of appointing persons to important judicial positions.

Mr. Gardner: Is the Noble Lord aware that I was removed from an advisory committee because I was a Parliamentary candidate?

JUVENILE OFFENDERS.

Sir Charles Cayzer: asked the Secretary of State for the Home Department whether his attention has been called to the case in a juvenile court where two boys aged 11 and 12 pleaded guilty to about 80 charges of housebreaking and larceny; and whether in such cases parents are admonished for lack of control and compelled to contribute substantially towards the maintenance of their children in approved schools?

The Under-Secretary of State for the Home Department (Mr. Geoffrey Lloyd): Inquiry has been made into these two cases. I find that each of these boys was in the care of a mother who is separated from her husband. One of the mothers is dependent partly on what she can earn as a charwoman arid partly on public assistance. The other mother works in a shop. The question whether in these cases the parents shall be ordered to contribute has yet to be considered by the court. It is within the power of the juvenile court to order the parent or guardian of a child charged with any offence to give security for his good behaviour and to make a contribution order on the parent of any child sent to an approved school, requiring the parent to contribute such weekly sum as the court, having regard to his means, thinks fit; and it is the common practice of juvenile courts in suitable cases to admonish parents as to their responsibilities.

CRIMINAL CONVICTION, LEEDS (PRISONER'S RECORD).

Sir C. Cayzer: asked the Home Secretary whether his attention has been called to the sentence of penal servitude passed on an ex-American gunman at Leeds; whether he is aware that this man had been deported from the United States twice and had there undergone long convictions for armed robbery; whether the police exercise any control over the arrival in this country of such offenders; and whether any information on the subject is passed to them by the American police?

Mr. Lloyd: Yes, Sir. The man in question is a British subject and could not, therefore, be refused admission to this country. Full information in such cases is received from the American authorities and communicated to the police.

Sir C. Cayzer: Can my hon. Friend say whether in such a case of a man with a long criminal record in the United States entering this country, he has to report to the police from time to time?

Mr. Lloyd: I do not think there is any power of that sort.

WOODWORKERS, WALTHAMSTOW.

Mr. McEntee: asked the Home Secretary whether his attention has been called to the fact that clerks and other unskilled machine workers are working high-speed woodworking machines under threat of dismissal if they refuse at Messrs. Bluestone and Elvin's works at Hookers Road, Walthamstow; and whether he will instruct his inspectors to prevent this danger to the men concerned and to those working in the vicinity of the machines?

Mr. Lloyd: The report which has been received from the district inspector of factories does not confirm the statement that men without sufficient training are being employed on this class of machine. Regulation 9 of the Woodworking Machinery Regulations, 1922, provides that no person may be employed at a woodworking machine unless he has been sufficiently trained to work that class of machine or unless he works under adequate supervision. The inspector has visited the works but found no breach of the Regulations.

Mr. McEntee: Is the hon. Gentleman aware that these men were removed when the inspectors were going there and that the statements made in this question are true?

Mr. Lloyd: I understand that other men were engaged who came within the scope of the woodworking regulations.

PRIVATE HIRE CARS (DEPARTMENTAL COMMITTEE).

Mr. Benjamin Smith: asked the Home Secretary whether he can now inform the House of the personnel of the Departmental Committee to be set up to inquire into the grievances of the London taximeter-cab drivers, the terms of reference, and the date of the first meeting?

Mr. Lloyd: My right hon. Friend hopes to be in a position to announce the membership and terms of reference of this Committee within the course of the next few days.

Mr. Smith: When can I put a question down again?

Mr. Lloyd: This day week.

AIRCRAFT PRODUCTION (UNIFICATION OF CONTROL).

Mr. Attlee (by Private Notice): asked the Secretary of State for Air whether he has any statement to make in regard to steps for unifying the control of responsibility for the development and production of aircraft and other material?

The Secretary of State for Air (Sir Kingsley Wood): Yes, Sir. The present Air Member for Research and Development, Air-Marshal Sir Wilfrid Freeman will in future be responsible for production as well as for development and research. Sir Wilfrid Freeman will be designated Air Member for Development and Production, and according to existing plans his period of appointment will be extended for a period of at least two years from the present date. To enable him to carry out his increased duties he will have the assistance of a Director-General of Production, and a Director-General of Research and Development.
I am glad to be able to inform the House that at the request of the Government the Board of Directors of the London Midland and


Scottish Railway have placed at the disposal of the Air Ministry the services of Mr. E. J. H. Lemon, Vice-President of the London, Midland and Scottish Railway who will become Director General of Production. Mr. Lemon's engineering experience will be of the greatest value in assisting in the planning and organisation of production, in co-operation with aircraft and allied industries. He will become a member of the Air Council, and will be assisted as necessary by staff with engineering and technical qualifications. The post of Director General of Research and Development will be filled by Air Vice-Marshal A. W. Tedder.
I should like to take this opportunity of expressing the gratitude of the Government to the President and Directors of the London Midland and Scottish Railway for their public spirited action in releasing Mr. Lemon for these important duties.

Mr. Bellenger: Will Mr. Lemon be engaged in whole-time duties under the Air Ministry, and will he be paid a salary?

Sir K. Wood: Yes, Sir, Mr. Lemon will be engaged in a whole-time occupation at the Air Ministry. It is proposed that we shall meet the expenses to which the company will be put during Mr. Lemon's absence from the railway company.

Mr. Dalton: Has the gentleman who has been appointed to take charge of research any engineering qualifications?

Sir K. Wood: No, but he has had considerable experience in work in connection with the Air Ministry, and has filled one or two other important posts before this one.

Mr. Attlee: Has he any knowledge of the problems of aerial navigation?

Sir K. Wood: Yes, this post has to do with research and development. The engineering qualifications more directly concern Mr. Lemon.

Mr. Garro Jones: Does the new arrangement involve any change in the duties of Sir Charles Bruce-Gardner who is the liaison officer between the Air Ministry and the industry and yet finds time to continue his work as chairman of a number of public companies?

Sir K. Wood: Sir Charles Bruce-Gardner is doing very valuable work for the Ministry, and this new arrangement in no way interferes with it.

Mr. Garro Jones: Is the right hon. Gentleman satisfied that at a time like this the man upon whom devolves the whole task of liaison between the Ministry and the manufacturers can carry out that onerous task and at the same time fulfil his responsibilities to a large number of shareholders?

Sir K. Wood: That is another matter, but I may say from my own personal observations that Sir Charles Bruce-Gardner is adequately fulfilling his important work and is constantly in attendance at the Air Ministry.

Mr. Simmonds: Can my right hon. Friend assure the House that this is only part of his scheme to reorganise supply in the Air Ministry?

Sir K. Wood: It is, at any rate, I hope, a good beginning.

MEMBERS OF PARLIAMENT (OFFICIAL SECRETS ACTS).

Mr. Sandys: Mr. Speaker, I beg to ask for your guidance in a matter arising out of the Official Secrets Acts and affecting the rights and privileges of the Members of this House. In a conversation which I had recently with the Secretary of State for War I drew his attention to the grave shortage of anti-aircraft guns and instruments. As my right hon. Friend suggested that I was misinformed I offered, before raising the matter in the House, to send him the precise figures of the deficiencies to which I had referred. I accordingly drafted a Parliamentary question incorporating these figures and sent it to the Secretary of State under cover of a letter of mine of 17th June. The purpose of this letter was to draw the Secretary of State's personal attention to the facts referred to in the question and to give him the opportunity, if he thought fit, of asking me not to put down my question. Except for a formal acknowledgment from the Minister's Secretary I received no reply to my letter.
However, on Thursday last I received a letter from the Attorney-General asking me to go and see him that evening. At this interview the Attorney-General in-


formed me that the question which I had sent to the Secretary of State for War showed, in the opinion of the War Office, a knowledge of matters covered by the Official Secrets Act, and he asked me to reveal the sources of my information. He added that I was under a legal obligation to do so. When I inquired what would be the consequences, were I to refuse to comply with his request, he read me the text of Section 6 of the Official Secrets Act and pointed out that I might render myself liable to a term of imprisonment not exceeding two years. In view of this I asked my right hon. and learned Friend not to press me for an immediate reply, as I felt that I must have an opportunity of taking advice in regard to my position. The following morning I consulted you, Mr. Speaker, and asked your permission to raise this matter in the House.
On being informed of this, the Attorney-General asked me to come and see him again, and told me that I had been under a misapprehension if I had thought that he had been threatening me with the use of the powers of interrogation under the Official Secrets Act. He offered to give me an assurance that "there was at present no intention" to use these powers against me. However, I contended that since the withdrawal of the threat of the use of these powers was qualified by the words "at present" the position, in my opinion, remained unaltered. Thereupon my right hon. and learned Friend offered to drop the words "at present" and to give me an assurance that "there was no intention" to take this action against me. But I pointed out that an "intention" might subsequently be changed. In reply to this the Attorney-General said that he was not free to give me more than this rather limited assurance without first obtaining the consent of the Secretary of State for War, who was away in Scotland. However, after I had told the Attorney-General that I was not inclined to abandon my intention to raise this matter in the House, he eventually offered to write me a letter giving an unqualified promise that in no circumstances would these powers of interrogation be enforced against me. I thanked him for this assurance, but told him that I could still not give him any undertaking to drop the matter, since this was a question which concerned not merely myself, but

equally all other Members of the House of Commons, and it was in my opinion most desirable that the position of Members under the Official Secrets Act should be clarified without further delay. Accordingly, on receipt of the Attorney-General's letter containing the promised assurance I sent him the following reply, dated 25th June:
Dear Attorney-General,
Thank you for your letter of 24th June confirming the assurance which you gave me yesterday, namely, that 'There is no question of seeking to exercise against me now or hereafter the police powers of interrogation under the Official Secrets Act.'
I am naturally relieved to know that no further pressure will be exerted upon me to reveal the sources from which I obtained the information which I communicated to the Secretary of State for War in my letter to him of 17th June. However, as I pointed out to you at our interview yesterday, this does not, of course, entirely dispose of the matter.
The marked reluctance and hesitancy with which you gave me this assurance at our second interview and the fact that you informed me that in giving this assurance you were exceeding the instructions given to you by the Secretary of State for War confirm the fact that the possibility of exercising against me the police powers of interrogation was being seriously contemplated.
The use of these powers in circumstances such as these raises an important question of Parliamentary privilege vitally affecting the freedom of the Members of the House of Commons in the discharge of their public duties. You will, therefore, appreciate that in spite of your assurance in regard to my personal position, I should not, in the interest of the House as a whole, be justified in abandoning my intention to seek Mr. Speaker's guidance. I shall accordingly raise the matter after Questions on Monday next.
Those, Mr. Speaker, are the circumstances which have led me to raise this matter, and I apologise for the time I have been obliged to take in recounting them. I submit, Sir, that a situation has been created, which is unsatisfactory and uncertain for all Members of this House, and I venture to ask for your guidance as to what steps should be taken to clarify it in the interests of all concerned.

The Attorney-General (Sir Donald Somervell): As my hon. Friend the Member for Norwood (Mr. Sandys) has referred to what took place between us, perhaps I might be allowed to make a short statement. Upon Thursday last the Secretary of State for War sent for me. He told me that he had had a communication from my hon. Friend, and that on information he had received from the General Staff the fact that the informa-


tion contained in the communication was known to my hon. Friend showed that there had been an unauthorised disclosure by someone of highly secret information. It was clear, therefore, that there had been a serious breach by someone of the Official Secrets Act. It seemed fairly clear to me that my hon. Friend could not have realised this. I was asked if I would see him and put the legal position before him, and ask him whether he was prepared to assist in tracing the disclosure by giving either to me or the Secretary of State the source of his information. I said that I would do so.

Mr. Kirkwood: Would not that have been a betrayal?

The Attorney-General: I saw my hon. Friend the same evening. I put the legal position before him and asked him the above question. He said his first reaction was not to commit himself one way or the other. He referred to the powers of compulsory interrogation under the Act, and asked me in what capacity I was asking him. I told him I was not acting under these powers nor threatening him with them. The question whether, in the event of his refusal and the disclosure not being otherwise traced, these powers should be used, had not been considered, and I had not considered them. He said that he would like time to consider his position, and I said that I would not press him. The discussion continued; and I am confining this statement to what is relevant to the present issue. The discussion later came back to the compulsory powers, and I said that I would read him the Section, which I did. He asked me what was the maximum penalty for a misdemeanour, and I said, "I think it is two years," and added, as he referred to the recent question which arose on the Bill introduced by my hon. Friend the Member for Dundee (Mr. Foot), that in that case I thought the man was fined £5.
The discussion then ended, as my hon. Friend was anxious to get back to the Debate which was taking place on Spain. This was between 7.30 and 8 0'clock last Thursday, or shortly after that time. The position was that he was going to consider whether he would or would not disclose the source of his information. He had told me that he would like to see the Secretary of State on the subject of his communication, and I had told him that

the Secretary of State was willing to see him. I heard on the following day that he was proposing to raise the question with Mr. Speaker in this House. I asked him to come and see me, which he did. I repeated that the question of exercising the police powers under the Act had not been considered, and therefore, as it seemed to me, any question of the kind that I understood he was proposing to raise was quite hypothetical.
He then put this point, and I summarise it as I understand it: He said that in considering what answer he should make to my question he wanted to know, and it was relevant that he should know, whether the police powers might be exercised in the event of his refusal. This struck me as a perfectly fair point. In the letter which he has read my hon. Friend refers to my "hesitation." He ascribed that to the fact that the question had been seriously considered. The opposite is the truth. I took some time to consider it, because I had not previously considered it. I told him it was outside my instructions from the Secretary of State for the same reason, namely, that the Secretary of State had not asked me to consider it. It is, however, in the last resort a decision which rests with the Attorney-General, if he is cognisant of the matter, as his consent is necessary for any prosecution in the event of refusal. Normally I would discuss such a matter with the Department concerned before coming to a decision which would be my sole responsibility.
I considered the circumstances as put before me by the Secretary of State and what my hon. Friend had said to me. I decided—and this was my own decision, arrived at without consultation with or knowledge of anyone else—that this was not a case in which these police powers of interrogation should be exercised, and that my hon. Friend was entitled to be told that at the time. I told him so. He asked me if I would confirm it in writing. I said "certainly," and did so. If I had come to the contrary conclusion I would have told him so. I would like to say, in view of one sentence in my hon. Friend's statement, that I did not ask him for or suggest that he should give me any undertaking, and I think he will probably agree. On any view it seemed to me that in the position which the matter had now reached, a decision one way or the other on this question, in the


circumstances of this case, was desirable and fair to my hon. Friend. I came to that decision and gave it to him on my own responsibility.

Mr. Speaker: A question has been put to me by the hon. Member for Norwood (Mr. Sandys), asking my guidance as to what is the best action to be pursued, and I shall deal with it on these lines: I have listened carefully to the statement of the hon. Member for Norwood and that of the Attorney-General, and I am convinced of the importance of the issue that they have raised as to the position of Members of this House with regard to the Official Secrets Act. At any time the question of their privilege might arise, and it seems to me that it is important that their position should be made as clear as it can be made as soon as possible. The hon. Member for Norwood asked me for guidance as to how this can be done. In my view the proper course for him to take is to give notice of a Motion in suitable terms, so that the House may fully discuss the question and itself decide then what action, if any, it proposes to take.

Mr. Attlee: In view of what has arisen may I take it that if the hon. Member for Norwood (Mr. Sandys) or any other hon. Member should see fit to put a Motion on the Paper there will be accorded full time by the Government for discussion of this very important matter? You, Mr. Speaker, have said that this raises the matter of the interests of all Members of the House, and their privileges. There appeared to me, in the statement of the hon. Member for Norwood and that of the Attorney-General, to be a question of difference of opinion as to the facts that this House ought to know. I would also ask the Prime Minister whether he or the Attorney-General has realised that this raises almost precisely the issues that were raised in this House on the occasion of what was known as the Campbell question—the action of the Attorney-General in a semi-judicial capacity, and his relations to a Minister of the Criwn from whom he appeared to have taken instructions. I take it that any Motion put on the Paper will deal both with the question of the privileges of Members of this House and also the actions of the Ministers concerned?

The Prime Minister: In reply to the question which the Leader of the Opposition has put to me, the House knows, of course, that the programme to the end of the Session is already very full, but in view of the terms in which you, Mr. Speaker, have stressed the importance of this matter, I think it is quite clear that time will have to be given for a Motion which will have the effect of clarifying the whole position.

Mr. Maxton: Am I to understand that the Motion, affecting the privileges of Members of this House, would not be subject to Amendment in the name of the Government, and that the House would vote on the issue completely free from pressure by Government Whips or any other source?

Mr. Speaker: Does the hon. Member refer to the Debate on the proposed Motion?

Mr. Maxton: Yes.

Mr. Speaker: I could not give an answer to that question now.

Mr. Garro Jones: Will the Prime Minister give us the undertaking asked for?

Mr. Sandys: I wish to thank you, Mr. Speaker, for your guidance, and arising out of it I wish to give notice that I shall table the following Motion, namely:
That a Select Committee of this House be appointed to inquire into the substance of the statements made on 27th June in this House by the hon. Member for Norwood and the action of the Ministers concerned, and generally on the question of the applicability of the Official Secrets Act to Members of this House in the discharge of their Parliamentary duties.

PERSONAL EXPLANATION.

Viscountess Astor: May I, with the permission of the House, make a personal statement? In the House the other day I intervened in a Debate to deny the accuracy of a suggestion made by the hon. Member for East Wolverhampton (Mr. Mander), that the Prime Minister had given an interview in my house to Mr. Joseph Driscoll, which he had published in certain newspapers. I am told that my refutation of the hon. Member's allegation has been taken by some as a denial of the accuracy of the contents of the article. This, of course, is not the case.


As a matter of fact, at the time of the Debate I had not seen the article, and so was not in a position to comment upon its contents, even if I desired to do so. As to a further point of misunderstanding, I never had any intention of denying that the Prime Minister had attended a luncheon at my house. The Prime Minister did so attend, the object being to enable some American journalists who had not previously met him to do so privately and informally, and thus to make his acquaintance. What I did deny, and still deny, is the suggestion that what took place on this particular occasion was an interview. An interview, I may remind the House, is a meeting arranged with a view to the communication of information intended specifically to be made the subject of articles in the Press or newspapers. I trust that I have now removed any misapprehension that there may have been in the minds of Members of this House.

MESSAGE FROM THE LORDS.

That they have agreed to,—

Dumbarton Burgh (Water) Order Confirmation Bill, without Amendment.

Public Elementary Schools maintained by Local Education Authorities.


(I) Number of classes, by size of class, and number of pupils on registers, as on 31st March, 1938.


Local Education Authority.
Number of classes with number of pupils on registers:—
Total number on registers.


Not over 30.
Over 30 but not over 40.
Over 40 but not Over 45.
Over 45 but not over 50.
Over 50.
Total.


(1).
(2)
(3)
(4)
(5)
(6)
(7)
(8)


Acton
…
18
86
56
14
1
175
6,698


Brentford and Chiswick
…
42
42
37
24
2
147
5,574


Ealing
…
40
134
130
137
—
441
18,037


Edmonton
…
24
111
94
101
10
340
14,041


Finchley
…
14
29
24
42
1
110
4,521


Hendon
…
37
99
107
89
17
349
14,251


Heston and Isleworth
…
30
71
76
79
27
283
11,901


Hornsey
…
44
82
49
16
1
192
6,975


Tottenham
…
67
300
113
17
—
497
18,213


Shrewsbury
…
34
45
32
15
2
128
4,615


Willesden
…
109
194
103
89
2
497
18,660


Wood Green
…
15
41
32
46
—
134
5,440


Enfield
…
27
115
87
57
2
288
11,477


Derbyshire
…
855
716
232
201
11
2,015
65,236


Gloucestershire
…
818
374
50
29
18
1,289
35,440


Lancashire
…
1,622
1,317
388
312
35
3,674
117,569


Middlesex
…
160
474
504
656
124
1,918
81,012


Shropshire
…
649
262
47
13
—
971
25,624

Orders of the Day — FINANCE BILL.

Considered in Committee [Progress, 23rd June].

[Sir DENNIS HERBERT in the Chair.]

CLAUSE 18.—(Amendments of Schedule C and consequential amendments of Schedule D.)

Amendment proposed [23rd June]: In page 12, line 40, to leave out Subsection (8).—[Mr. Hely-Hutchinson.]

Question again proposed, "That the words proposed to be left out, to the word 'and,' in page 13, line 12, stand part of the Clause."

The Chairman: Sir John Mellor.

4.16 p.m.

Mr. Benson: On a point of Order. I think I was in possession of the Floor when the Debate was interrupted. I believe that the hon. Baronet had already resumed his seat, and I had risen and been called upon by the Deputy-Chairman.

Sir John Mellor: I am afraid that it has been quite impossible for me to hear anything of what the hon. Member has just said.

The Chairman: Perhaps I might assist the hon. Baronet if the hon. Member for Chesterfield (Mr. Benson), will allow me—he will perhaps correct me if I do not state the matter quite as he wishes. I called the hon. Baronet because I gathered from the OFFICIAL REPORT that the hon. Baronet was in possession of the Floor of the Committee at the time the Debate was interrupted. The hon. Member for Chesterfield has just risen to a point of Order to say that he understood that the hon. Baronet had finished his speech and that he himself had been actually called.

Sir J. Mellor: My recollection is that I resumed my seat because I had put a question to the Attorney-General and expected an immediate reply. I thought that the Attorney-General was about to rise to his feet, but as soon as I found that he was not going to do so, I rose and asked for a reply. At that moment the Deputy-Chairman stopped the discussion, and left the Chair.

The Chairman: It is clear that the hon. Baronet did not finish his speech, and perhaps the hon. Member for Chesterfield would allow him to continue.

Mr. Benson: Certainly.

4.18 p.m.

Sir J. Mellor: When the Debate was interrupted last Thursday for a discussion of the question of the bombing of ships in Spanish ports, I had asked the Attorney-General a question relating to the decision on the taxing of funding bonds. I understand that under the Bill as it is drafted funding bonds will be assessed to Income Tax on their money's worth at the date of issue, and I was putting to the Attorney-General the case where a funding bond had been issued, but no interest had ever been paid in respect of it, and the funding bond itself had never been redeemed. The case would then arise of the revenue having collected tax in some shape or form, although, in the result, no cash would ever have been issued for the bond by way of interest or redemption. I note under one paragraph of the Bill that it is competent for the responsible agents who issued the funding bonds to retain a certain proportion of funding bonds and hand them over to the Revenue authorities in lieu of the amount due as taxation, but it is also provided under another paragraph that, in the discretion of the Commissioners of Inland Revenue, they shall be allowed to dispense with that arrangement and that, in those circumstances, they shall be acquitted of liability upon furnishing to the Commissioners the names and addresses of persons who are ultimately entitled to receive the funding bonds.

Mr. Denman: On a point of Order. May I ask, in order to clarify our Debate, whether we are now discussing a question which arises on Clause 20 as well as this sub-section? If so, perhaps we had better have a considerable Debate now and have done with it.

The Attorney-General (Sir Donald Somervell): I am entirely in the hands of the Committee. The Amendment moved by my hon. Friend relates to the question of retrospection in these matters. I understand the point which the hon. Baronet is raising now to be one which I should have thought arose under Clause 20. It has nothing to do particularly


with retrospection, and there are other Amendments on the Paper on the question of funding bonds.

Sir J. Mellor: I appreciate the point made by the Attorney-General but, as the discussion last Thursday appeared to range over Clauses 18 to 20 of the Bill, I thought that if I did not raise this point now I might miss the opportunity altogether. I shall be glad of your guidance, Sir Dennis, whether you desire me to proceed or whether I shall have a future opportunity of raising the point.

Mr. Hely-Hutchinson: The point of the hon. Gentleman seems to cover the mechanics of the deduction of tax as well as its equitability. In replying, the Attorney-General touched on the whole question, on the ground that all these instances fell into a class which was, on ordinary principles, regarded as income.

The Chairman: I have had my attention called to what took place in regard to this matter when it was previously before the Committee. I could not admit upon this Amendment a general discussion which would cover two other similar Amendments on subsequent Clauses unless I received a definite understanding from the Committee as a whole that the later Amendments would not be debated, or would not be moved. There are, no doubt, certain points in which the Amendments could all be affected by certain arguments, but there are differences in the Clauses which would mean that certain arguments relating to Amendments to later Clauses would not be admissible on Clause 18. I do not know whether hon. Members who have their names to this Amendment wish to move the later Amendments, but if they do, the discussion, in so far as it goes beyond the general matter applicable to all the Amendments, would have to be reserved until those Amendments are reached.

Mr. Pethick-Lawrence: I suggest that we take now a discussion on the general retrospective principle, whether it comes in Clauses 18, 19 or 20. That is a definite issue by itself, and if we cover it, it would be open to us to deal with any other aspect of the Clauses on separate Amendments.

The Chairman: With the general assent of the Committee, that would be the most reasonable course. The other Amend-

ments will be called in due course, but on this Amendment the discussion must be confined strictly to this Amendment on this Clause. When we come to the similar Amendments on the other two Clauses we shall have to rule out so much as has already been said on the first Amendment in regard to the general principle of the retrospective nature of the Clause. That would delimit the debate on the other Amendments to the particular points in which their effects on those Clauses differ from the effect of this Amendment on this Clause. I think that we shall have no difficulty in that respect.

Mr. Bellenger: May I remind you that the hon. Member for Hastings (Mr. HelyHutchinson) referred to this question of funding bonds in Clause 20, as will be seen in columns 1333–35 of the OFFICIAL REPORT for last Thursday? In reply, the Attorney-General touched on the question.

The Chairman: This is another point altogether. I have before me the OFFICIAL REPORT, and I gather that the hon. Member asked a question of the Deputy-Chairman:
Are we discussing the next Amendment also?",
that is to say, the next Amendment on this Clause—in page 13, line 12, to leave out "and," and to insert:
or
(iv) any written notice given before that date by or on behalf of any person of an intention to appeal against any assessment or to make a claim in respect of any deduction of tax in respect of any dividends or proceeds of sale or realisation referred to in this Section.
I see no reason to disagree with what was said by the Deputy-Chairman on that occasion, whose reply was:
Yes. I was listening very carefully to the hon. Member, and obviously. it is very difficult to deal with this case without covering both cases."—[OFFICIAL REPORT, 23rd June, 1938; col. 1332; Vol. 337.]
As the Committee has already assented to these two Amendments to Clause 18 being discussed together, when we dispose of the first one the second will be put to the Committee, if that is desired, only for purposes of Division, and not for discussion.

Colonel Gretton: There are two Amendments later on the Paper to Clauses 32 and 34. Both relate to family settle-


ments, and the principle of retrospective action is involved in them. Would your Ruling apply also to those two Clauses, which deal with an entirely different subject? The Amendments to which you referred relate to commercial arrangements, but the others deal with family matters, and there would be quite a different set of arguments, although they would be associated with the principle of retrospective application.

The Chancellor of the Exchequer (Sir John Simon): I trust that we shall not take any matters arising under Clauses 31 to 34 now. They come in an altogether different Part of the Bill.

The Chairman: It is clear that what I have said does not apply to those later Clauses.

Sir J. Mellor: I take it from your Ruling, Sir Dennis, that it would be the proper course for me to discontinue my comments on the question of funding bonds and to refer only to retrospective legislation. Certain Clauses in the Finance Bill have been aimed at the question of evasion, and the Government justified their retrospective proposals on the question of evasion because they said that taxpayers had been warned last year that, if they found further loopholes for evasion, they would be dealt with by retrospective legislation. But in the cases under discussion there has been no suggestion whatsoever that anyone has been guilty of evasion, and, of course, no warning of any sort has been given. On the contrary, such discussions as appear to have taken place have been rather misleading to the taxpayer.
My hon. Friend the Member for Hastings (Mr. Hely-Hutchinson) read some correspondence between the Secretary of the Association of Investment Trusts and the Secretary of the Inland Revenue Department, and it was made quite clear, in a letter dated 18th March from the Secretary of the Inland Revenue Department to the Secretary of the Association of Investment Trusts that, in cases where members of the Association had notified the Inland Revenue that they intended to make a claim with regard to matters decided in the Paget case and the case of the London Provincial Trust, which were then the subject of possible;

appeal, whatever might be ultimately decided in those two cases, members of the Association who gave notice to the Inland Revenue that they intended to make a claim would be in no worse position than the litigants in those two cases. There was a very definite assurance on that point. But the Attorney-General on Thursday, in his reply to the speech of my hon. Friend the Member for Hastings, did not deal with that correspondence at all, but made a reply which I do not think really meets the case. According to that reply, it seemed to me that members of the Association of Investment Trusts who, acting on the assurance contained in the letter of 18th March from the Secretary of the Inland Revenue, refrained from giving formal notice of appeal, and contented themselves with merely lodging a notice of intention to appeal, will be excluded from the protection provided in Clauses 18 to 20 of the Bill for those people who have given formal notice.

The Attorney-General: I did deal specifically with this matter on Thursday. I said that, so far as appeals were concerned, those who under this letter were in a position to put in an appeal at this time—that is to say, in whose case the 21 days had not expired—would be in exactly the same position as if they had put in formal notice of appeal, and would come within the exception in paragraph (a, iii).

Sir J. Mellor: I am obliged to the Attorney-General for making it clear that in fact the assurances contained in the letter of 18th March will be fully honoured by the Government. If that is his assurance, I am quite satisfied, and have nothing further to add.

The Attorney-General: I do not want there to be any misunderstanding. I said exactly what I have just repeated with regard to appeals, but my hon. Friend now asks me if the assurances given in that letter will be fully honoured. That is rather a different matter, because I do not read the letter as saying what he says it did. A few moments ago he said that the letter stated that those who gave their names by this date would be put in the same position as the litigants,. by which I understood him to mean Miss Dorothy Paget and so on. But it does not mean anything of the kind. The letter


says that they would be in the same position, not as any existing litigants, but as if they had commenced proceedings on that date. I pointed out on Thursday, and I now repeat, that, so far as claims for repayment of tax, by petition of right are concerned, they are excluded by the retrospective provision, but that appeals against assessments given in time would be within proviso (a) (iii).

4.37 p.m.

Mr. Benson: I feel that I must apologise to the Government for butting into what seems to be a private quarrel between themselves and those who might, euphemistically in the case of this Amendment, be called their supporters. The hon. Member for Tamworth (Sir J. Mellor) seems to regard retrospective legislation as a punishment for tax evasion—

Mr. Macquisten: Retrospective legislation is a crime. It is always a crime.

Mr. Benson: I think that retrospective legislation is justifiable in any circumstances where it does not inflict an unjust hardship upon those whom it affects, and I do not think that the retrospective legislation proposed by this Clause of the Bill can be said to impose any injustice upon anyone. I should like very sincerely to congratulate the hon. Member for Hastings (Mr. Hely-Hutchinson) on the extraordinary clarity of his opening speech on these Amendments. The subject is an extremely difficult one, and he made it very clear. But I am not sure that his very clarity has not let him down; had he been a little more obscure, the weakness of his case would not have stood out in such bold relief.
He attempted to establish two distinct points. The first was that defaulted bonds fall into an entirely different category from non-defaulted bonds, and could not in justice be taxed. His second point was that the retrospective legislation proposed, that is to say, the barring of petitions of right, was also unjust. As to whether defaulted bonds are different from non-defaulted bonds, the hon. Member cannot take his stand upon the legal decision; if he is to establish his point, lie must establish it, not upon legal technicalities, but upon clear grounds of equity, because in fact the legal decision does put defaulted bonds and certain non-defaulted bonds in the same position.

Therefore, he cannot possibly stand upon the legal decision, more particularly as he waives the right to retrospective repayment of tax on those bonds which come within the legal decision but upon which default has not been made. He must rest his case purely upon general considerations of equity. In his speech he used one argument only. Referring to the Brazilian bonds, he said:
I think it can hardly be disputed that it certainly was not payment of the interest"—
he was dealing with the issue of a funding bond in lieu of the coupon—
for since then the Brazilian Government has gone into default on the interest on that funding bond, and the likelihood of the principal of that funding bond itself being paid at maturity is very remote."—[OFFICIAL REPORT, 23rd June, 1938; col. 1334, Vol 337.]
The argument, therefore, is that, if a bondholder receives something which ultimately may become valueless, he should escape taxation. I suggest, however, that the ultimate value of what is received for a defaulted bond is no concern of the fisc. The fisc is concerned with the value given at the time of payment, and the Brazilian bonds definitely had a market value when they were issued, though it may not have been as much as the bondholders anticipated.

Mr. Macquisten: You could not have sold any of them.

Mr. Benson: Most certainly you could. They had a value at the time of issue, but, even if they had no value at the time of issue, that does not alter the principle. The principle remains that the value of the funding bond at the time of issue is the taxable entity. The hon. Member for Hastings has himself put forward that criterion as the measure of taxability under the next two Clauses, because he is proposing to introduce Amendments stating that the taxable value shall be the market value, and that, at the present moment, is all that is being proposed under this Clause.

Mr. Hely-Hutchinson: That will only be inserted if the principle of the subsequent Amendment is accepted.

Mr. Benson: It is a very good principle for the hon. Member to assert, anyhow, and a very sound one—far sounder than his present Amendment. The mere fact that a bondholder receives less than he anticipates is no valid argument for his


escaping taxation on the smaller amount that he has received. Suppose that a holder, of cumulative preference shares, finds that the company in which he)1as invested is in difficulties, that it is unable to pay the full interest on its preference shares and pays, say, half rate; the other half may come at some future date. He is in exactly the same position as a bondholder who receives a funding bond of less value than the coupon he anticipated receiving. Does the hon. Member suggest that the preference shareholder should therefore be allowed to escape tax on the smaller rate? No. There is no difference in principle; the bondholder receives a mere percentage of what he anticipated—

Mr. Hely-Hutchinson: The hon. Member is arguing that it is the value of the thing that determines taxability; we say that it is the nature of the thing. If it is money, if it is cash, it is clearly taxable.

Mr. Benson: If it has value, it is money's worth. How many bondholders actually receive money for their bonds? I do not suppose that one in 10,000 does. They are paid either by cheque or by an entry in a bank book. Either of those is money's worth; and so is a funding loan, and so is blocked currency. There is no suggestion by the Chancellor that there should be any taxation except on money's worth. The hon. Member suggested that these funding bonds, although they might have an immediate value when issued, might ultimately have no value at all; and he asked what is the position of the taxpayer in that case. It is similar to the purchaser of a funding bond. These people pay money for something which is at present money's worth, but which ultimately becomes valueless. The bondholder who retains possession of a funding loan is logically in exactly the same position as a speculative buyer.
I want to refer to the question of retrospection. The hon. Member for Hastings complained, not so much in word as in tone, about the interpretation the Chancellor had put not on the letter of the Association of Investment Trusts, but on the memorandum issued by the Board of Inland Revenue on 19th August, 1937. So far as I can see, the Government have implemented every suggestion, every

statement, made in that memorandum. The memorandum made no promise. It was not a guarantee. It was simply a series of instructions to paying agents as to how they were to deal with current deductions on current coupons. There is no suggestion that those instructions should be regarded as precedents, and the Government, in this Clause, specifically omit from the operation all bonds falling between the date of the legal decision and the introduction of the Finance Bill. Hon. Gentlemen behind the Government protest bitterly against retrospective legislation, but what they are demanding are retrospective legal decisions. They are demanding that the legal decision given last year shall have the effect of enabling taxpayers to apply, by petition of right, not for current bonds but for bonds going back indefinitely. The hon. Gentleman himself suggested that it should apply to bonds going back six years, but that is a purely arbitrary suggestion. There is no more justification for saying six years than for the Government to say, "We will allow nothing at all."

Mr. Hely-Hutchinson: I am not sure about this, as it is a legal point; but there is some doubt whether a petition of right does go back more than six years for Income Tax.

Mr. Benson: It makes no difference to the argument. Here, upon a purely legal technicality, the hon. Member proposes that a legal decision should be made retrospective for six years, or for 50 years, as the case may be. I can see no justification whatever for that. It is hon. Gentlemen opposite who are demanding retrospective legislation. The Government are merely stating that they will maintain the status quo. If the demand for equity is to be met fully, hon. Gentlemen opposite cannot be satisfied merely with allowing petitions of right to go back indefinitely. Full equity in that case would demand that the Government should pass further retrospective legislation, allowing anybody who has suffered in respect of taxation by assessment to open up all their previous assessments. It is obviously unfair that anybody who has suffered through taxation by deduction 25 years ago should be entitled to claim it back, while anybody who has suffered from taxation by assessment should have to put up with it because an


appeal has to be made within 21 days. The Government have taken up a reasonable course, and I shall be interested to see whether the hon. Member and his friends can make a stronger case for their argument that a defaulting bond is not interest.

4.52 p.m.

Mr. Bellenger: I am not quite in agreement with my hon. Friend. This is not merely a private quarrel between certain Members and the Treasury. It is quite a good principle for this Committee to protect individual taxpayers, as far as they can, from the machinations—if I might call them that—of Government Departments. It is up to the Chancellor to get his taxes as and when he can, and to get this House to give him the authority to impose taxes. The question arises as to whether this is an injustice which the hon. Member for Hastings (Mr. Hely-Hutchinson) and the hon. and learned Member for-Ashford (Mr. Spens) have brought before the Committee. After listening to the Attorney-General, I do not think we can find fault on this occasion with the retrospective action which he proposes to take. Indeed, the hon. and learned Member for Ashford himself admitted that there would be occasions when retrospection would be desirable, or at any rate legitimate; and think this is such a case. As far as I understand, this confusion has arisen owing to the Treasury themselves not being quite certain whether the taxation should have been deducted at the source.
I rise only to try to elucidate one or two points. In the case of non-defaulted bonds the income is quite definite, if the bondholder receives the face value of the coupon that is his income, and it is the assessment on which he is taxed; but when we come to the case of defaulted bonds and promises to pay which are given by the defaulting Governments, I should like to know what actually is the income which is taken by the Treasury as arising on these defaulting bonds. For instance, the Attorney-General gave an example of a case where a bondholder was due to receive £5 interest on a coupon, but did not receive it; he may have received only £3; it may have been in blocked currency or in various other ways. Where a bondholder receives a promise to pay, what is the figure which the Treasury assess as the income of the bondholder? How do they assess that

figure? If bonds are issued for interest which should be paid, is that assessed according to stock exchange or market quotations at the time they were issued? If so, I can readily understand that that becomes the income of the person who holds that promise to pay. On this occasion, although I think the hon. Member for Hastings and the hon. and learned Member for Ashford have been quite within their right in bringing this matter before the Committee, I think the Attorney-General is also within his rights in taking some retrospective action.

4.57 p.m.

Mr. Touche: I would like to associate myself with the arguments put forward by the hon. Member for Hastings (Mr. HelyHutchinson) and the hon. and learned Member for Ashford (Mr. Spens). I think, in principle, all retrospective legislation is wrong. It can be justified when there is a case of tax evasion, but in this case there is no question of tax evasion. As far as I understand, the retrospective taxation of this Clause will not apply where the taxpayer can appeal against assessment, but it will apply when he starts a claim for repayment. I would ask the Attorney-General what possible ground there is for that distinction? It means that the same coupon in different hands will be treated differently. If a person sells coupons abroad, to Vienna or Budapest, he will make a return and will receive an assessment. Under this, taxation will not be retrospective; therefore, he will escape the tax. If, on the other hand, he sells a coupon in London, he will have to pay the taxation, and he gets no protection from the Clause.

The Attorney-General: I think that arises on Clause 19. Perhaps the hon. Member will raise it then.

Mr. Hely-Hutchinson: Does not this make a distinction between two ways of treating the same coupon on the same bond?

Mr. Touche: I am much obliged to my hon. Friend the Member for Hastings for clarifying that point, and perhaps the Attorney-General will deal with it. The other strong objection to retrospective legislation in this case is that it is interfering with the process already before the court and not yet completed. Last March the Inland Revenue were informed that 200 petitions of right might be


lodged. It was agreed that one petition of right should be lodged, and that 200 claims should formally be put in. A month later the Chancellor of the Exchequer comes down to the House and introduces a Budget Resolution which vitiates the claim made by the petitioners. It is difficult for any taxpayer to make any claim against the Inland Revenue, and it is a great burden, after a petition has been lodged, that the law should be altered in the following month against the taxpayer.

5.2 p.m.

Mr. Pethick-Lawrence: I should just like to say where my hon. Friends and I stand on this matter. The general principle against retrospective action is a thoroughly sound one. This House, as my hon. Friend the Member for Basset-law (Mr. Bellenger) said, should be the guardian of the taxpayer against the Government, and should scrutinise very carefully any proposal for retrospective action. The taxpayer is entitled to know where he stands, and, having summed up his position, it would be very unfair and improper, except in cases of deliberate evasion, if the Government were afterwards to come down to this House and, by means of their automatic majority, alter the position from what the taxpayer believed it to be, in order to gain a wholly improper advantage to the Treasury. I think that we are all agreed upon that point. There are cases, however, where the law turns out to be different from what the taxpayer himself believes, except in isolated instances, and the question is whether that is or is not the case with regard to this particular matter.
Having listened to the Debate and heard the explanation of the learned Attorney-General, I have come to the conclusion that the Government have made out their case in this particular instance for retrospective action. An hon. Member opposite said that this was not a case of evasion. I do not think that anyone has ever suggested that it was. It is an entirely separate ground on which retrospective action has to be justified, if it can be justified, and this is really to put the law into the position in which the bulk of the people have always supposed it to be. On the question of the merits of the particular proposal as a whole, I have no hesitation in saying that I think

the Government are justified in this particular instance in making the law retrospective.

5.5 p.m.

Mr. Spens: The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) says that we are dealing with a Clause which makes legal what the bulk of the people thought was the law in the past. The difficulty is that that statement is quite true as to a number of transactions dealt with by the courts, but the real issue is a transaction which, I believe, the bulk of the people thought was not affected by the Income Tax law. That was one in which the taxpayer had for a number of years protested against the action of the Government on the basis that he had either given directions to the bank to deduct tax from the bonds at the source or to make direct assessment upon the taxpayer. For the future, as I said on Thursday, no one has the slightest objection to the Government altering the law, but when it comes to retrospective action, it affects those particular transactions where there was a bona fide doubt and a contest for a number of years between certain taxpayers. There is not a very large bulk of citizens affected by these transactions, but the amounts are very substantial. These people constantly find that, although they have turned out right in their views, none the less they are to be treated as having been wrong from the start, with certain exceptions. The exceptions are the actual litigants and those persons who had entered notice of appeal against assessments.
Now, thanks to the assurance that my right hon. Friend the Attorney-General has given, also those people who refrained from giving formal notice of appeal against assessment but intimated that they were in a position to make an appeal, are to be included. As far as I am concerned, I very much prefer to have that assurance from the Front Bench on this matter than to make any attempt to amend the Sub-section further so as to try and get these people in. One knows the practice of the Inland Revenue, and an assurance given by a Minister on the Front Bench, I am certain, would be honoured on behalf of these people. There is a complete exception as regards the people who have Income Tax deducted from the source, and it produces the anomaly, which my


hon. Friend the Member for Hastings (Mr. Hely-Hutchinson) pointed out, that, where these coupons have been dealt with in one way so that Income Tax has been deducted at the source, there is no relief for anybody. Where they have been dealt with in another way, or when a direct assessment has been made upon the people, those who have appealed or are in a position to appeal are to be given relief. The House may think that that is desirable in this case, but nothing is going to induce people who have had deductions made at the source under protest for a number of years to be satisfied with this solution of retrospective legislation on this particular Clause. While thanking my right hon. and learned Friend for the further concession in the course of this Debate, I regret that the Government cannot go further and make some concession to these people who have been subjected to a deduction of Income Tax from the source in spite of their protests for a number of years, and who have been proved right in the legal view they have taken all along. Subject to these remarks, I suggest that the Amendment be withdrawn.

Mr. Hely-Hutchinson: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Chairman: I take it that the next Amendment in the name of the hon. and learned Member for Ashford (Mr. Spens) will not be moved.

Clause ordered to stand part of the Bill.

CLAUSE 19.—(Provisions as respects transfers of income arising from securities.)

5.10 p.m.

Mr. Spens: I beg to move, in page 13, line 27, after "transfers," to insert "for valuable consideration."
I confess at once that I have read and re-read this Clause a number of times and I am still not the least sure that I have discovered exactly what machinery is being applied to effect the desire of the Government to put into effect the taxation of these bonds. It is quite clear that the opening words of Sub-section (1) of the Clause prescribe that, if I am the owner of a bond to which coupons are attached and I detach those coupons and either sell them or give them away, that creates at

once some liability on someone for Income Tax. If I sold them and I received a certain sum of money for them I should have to bring into my income the proceeds of sale. I visualise a bond with 20 years' coupons attached to it on which I have no reason to believe that there will be any default, and I want to provide my son with a fairly safe income year by year for the next 20 years. I tear off these coupons, while retaining the bond myself, and hand them over to him, and say, "Present them every six months and there will be an assured income for you for the next 20 years." If I do that I am making a gift to my son, and as they may presumably be bearer coupons, my son may pass them on and do all sorts of things with them. Although the coupons may have got into other hands, the amount which they represent, whether it be the total nominal amount or the amount which may be paid on them from year to year, appears to remain my income. I am not quite clear whether, in the year in which I detach the coupons, I have to bring in the whole nominal amount of the coupons which I gave away, or whether it means that I have to bring into my Income Tax during each of those 20 years the amount of what my son, or somebody else to whom he has given the coupons, has received.
I suggest to my right hon. Friends that the first scheme of taxation, that is to say, to tax the man who deals with the coupons and receives a sum of money for them on about the day on which he parts with them, seems to be a transaction complete in itself, and there is no difficulty in bringing the amount he receives into his Income Tax account. But to attempt to tax gifts in this case, although I fully appreciate that there is a good precedent for it in attempts to tax gifts in other cases, is really going to be rather unworkable. I ask my right hon. Friends whether it is worth while. Are there so many people who, while keeping the bond itself, detach the coupons and give them away? There are thousands of cases of people who detach the coupons and sell them at a discount, but how many cases in the year are there of people who keep the bonds and detach the coupons and give them away to somebody else? Is it worth while to go through the process of making the person who keeps the bond liable for the amount that some other person, of whom he may never hear, gets


on the coupons? There is not much in it for Revenue purposes, and it would make it much simpler and watertight if it was confined to transactions for value.

5.20 p.m.

Sir Douglas Thomson: May I ask the Attorney-General whether this provision applies to gifts to charity, whether the income relates to coupons or bearer bonds or to stock transferred to the charity? Normally speaking, these settlements are made for six or seven years to the charity, and the charity has the income from the shares or securities for that period. If this provision affects such gifts, can it operate retrospectively for six or seven years?

5.21 p.m.

The Attorney-General: My hon. and learned Friend the Member for Ashford (Mr. Spens) in moving the Amendment said that the case he had in mind did not very often arise and he seemed to think that that was a reason for accepting the Amendment. It might equally be an argument for resisting the Amendment. Let me tell him the main purpose of the provision, because I am not sure that he quite appreciated it. In the previous Clause we have dealt, broadly speaking, with those coupons which are either sold through a coupon dealer in this country or realised by a banker on behalf of his customer. In both those cases there is somebody here who is getting the value, the holder of the bond is the person who receives payment, and the coupon dealer or banker deducts the tax and accounts for it to the Revenue.
If Parliament left the matter there there would be a very easy means of evasion by reason of that part of the Paget decision which says that the proceeds of the sale of the coupon rights are not income. In that case all that a person would have to do, instead of selling it to a coupon dealer here, in which event the Income Tax would be deducted in London, would be to sell it to a coupon dealer in Amsterdam and collect the gross amount from him, because the coupon dealer in Amsterdam is not affected by British Income Tax. The seller would escape Income Tax, because the Court has held that the proceeds of the sale are not income. The main purpose of the Clause is to fill up that blank and to

say that if he sells or transfers the right to receive any interest payable on the coupon, that is deemed to be his income. My learned Friend wants to put in the words "for valuable consideration." I am not quite clear what is his object. I do not think that he wants to produce this position, that a man who has a large block of these coupons can say, "I will give them to my son instead of drawing a cheque which would come out of my income. What I am doing is to make a gift out of my income resources to my son, but I shall be able to do it without paying taxation on the amount so transferred.
Let us look into the position. Let us suppose that there is a man who is paternally benevolent in the month of June, and he wants to give his son £50. Normally, he would sit down and write a cheque for £50 which would come out of his taxable income, but suppose we accepted the Amendment, it might be that he would say, "I have some coupons maturing in June; if I sell them to a coupon dealer in London or realise them in Amsterdam I shall have to pay income tax upon them, because they are my income. Suppose therefore, instead of drawing a cheque I hand the coupons to my son and he sends them to Amsterdam, neither of us will have to pay Income Tax on them, because I shall not have transferred them for valuable consideration, and he will not pay because he does not own the source, namely, the bond to which the coupons relate."

Mr. Bellenger: What would be the value? Would it be the nominal value of the coupon or the value he receives for the transfer?

The Attorney-General: The amount of the interest. As I understand the Amendment I do not commend it to the Committee and I would advise the Committee not to accept it.

Mr. Spens: Would the Attorney-General study the matter from another point of view. How long is the owner of the parent security the person whose income it is deemed to be, if he parts with the parent security?

The Attorney-General: That does not seem to arise on the Amendment. Very difficult questions can arise under this as under other provisions of the law where it passes out of one area into another.


The hon. and learned Member suggested a very unlikely case of a man handing over to his son coupons extending over a period of 20 years. That is very unlikely to arise in practice. I will look into the point that was put by my hon. and learned Friend. My hon. Friend the Member for South Aberdeen (Sir D. Thomson) raised a question in regard to charity. I do not think that this Clause affects in any way the sort of position that he has in mind. He put the case of stocks being transferred to a charity and the charity receiving the income. Charities do not pay Income Tax on their income. If tax has been deducted at the source they can recover it. Therefore assuming that on coupons the tax has been deducted they will, as in the past, be able to recover. Their position is unaltered by this Clause by reason of the words "deemed to be his income." The Clause has not altered the position so far as charities are concerned.

Sir D. Thomson: What about the settlor? Would he be liable?

The Attorney-General: No; a settlement is unaffected by this Clause. What we are dealing with in this Clause is the question whether certain products of coupons shall be treated as income. If a man has been making ordinary annual gifts to charity out of his taxed income he is in exactly the same position as anybody else.

Sir D. Thomson: I am not a lawyer and I do not understand the Clause. The point that I want to be sure about is that it does not apply to any one settling money or stocks on a charitable institution, say, for a period of six or seven years.

The Attorney-General: If the funds in the settlement come within the provision of the Clause, then of course the provisions will apply to them. I can, however, give the hon. Member the most categorical assurance that no charity will be in any worse position as a result of this Clause.

5.30 p.m.

Mr. Pethick-Lawrence: This Clause deals largely with matters of detail, but in regard to the Amendment which we are now discussing an additional point occurs to me. Suppose a man resident and domiciled in this country has a son resident and domiciled in a foreign coun-

try and wants to hand over a sum of money to his son, he has to do it after he has paid Income Tax, but if the Amendment is accepted would it not enable a man who was proposing to hand over a sum of money to a relative living in a foreign country to escape Income Tax entirely on the money he sends? I think it would, and that is a point which I think must be carefully considered. There is another point which occurs to me—it may be that I have not read the Clause with sufficient care. I can well understand a man who has a coupon which is either ripe or nearly ripe for encashment handing it over, but the transaction contemplated is when coupons are handed over several years in advance, and I am not clear in which year income tax would have to be paid. I should have thought that tax would be paid each year as the coupon is cashed.

The Attorney-General: That is so.

Mr. Pethick-Lawrence: The Attorney-General says it is so. Otherwise it would mean that they would all have to be paid before the transfer was effective. The hon. Member for Aberdeen, South (Sir D. Thomson) raised one or two points.

The Attorney-General: I was wrong. Income tax becomes chargeable for the year in which they are transferred.

Mr. Pethick-Lawrence: I thought that was so under the Clause. But the rate of income tax may vary considerably from one year to another. If a man thought there were going to be foreign complications in which the rate of tax would considerably increase, and disposed of his coupons 10 or 15 years in advance, it seems to me to be unsatisfactory that he should be able to compound his Income Tax seven years in advance. I think he should be assessed each year on the interest as it becomes due. That is a more equitable way and also a more suitable way for the collection of the revenue. But passing to the point raised by the hon. Member for South Aberdeen there seem to me to be two distinct points involved. The hon. Member was not afraid of what will happen with regard to coupons but as to whether the verbiage of the Clause could be construed as applying to something entirely different from coupons. That of course is a purely legal matter which the Attorney-General must


consider and decide; whether words which were intended to apply to one kind of transaction are so broad as to cover an entirely different kind of transaction. I thought the point of the hon. Member was this: Suppose a man desires to present a hospital with seven years' income and transfers to the hospital seven years' coupons. What is the position in that case? Is his position precisely the same? Does he pay on the one year's assessment and then does the hospital recover, or what precisely is the position? That is an entirely different point from that with which the Attorney-General dealt. If instead of sending each year a sum of money to the hospital he detaches seven years' coupons and hands them in bulk, how is his Income Tax affected in that case?

5.36 p.m.

Mr. Benson: There is one point, arising out of the remarks of the hon. Member for South Aberdeen (Sir D. Thomson), which I want to put. I can find nothing in the Clause which limits its operation to coupons. The first two lines are perfectly clear:
where in any year of assessment the owner of any securities sells or transfers the right to receive any interest payable.
If the Amendment is carried it means that the owner of any securities of any kind, if he wishes to transfer them for a non-valuable consideration, or wishes to transfer one year's interest for a non-valuable consideration, can do so and avoid Income Tax. In other words, if the Amendment is carried it means that this Clause will simply make hay of the seven years trust Clause. The position, if the Amendment is accepted, will be that interest not transferred for a valuable consideration will not be taxed. It does not need to be handed to a hospital; it can be handed to a private individual, and he pays Income Tax, which may not be at the same rate as paid by the donor, who may be a Surtax payer. Income Tax will be paid at the rate of the recipient, who may not be subject to Income Tax at all. If the Amendment is carried we have torn up the limitation we have put that you cannot make tax free presents for less than seven years.

The Attorney-General: I will consider the point put by the right hon. Member

for Edinburgh, East (Mr. Pethick-Lawrence), but I still think that the right position is that embodied in the Bill. It is unlikely that people are going to realise in advance interest rights for five or six years. I have been attacked for speaking as if the Clause only referred to coupons. I agree that the words are clear, but the reason I did so is because the Clause says:
Where in any year of assessment the owner of any securities sells or transfers the right to receive any interest payable"—
and that is a transaction which is very unlikely to be entered into except in the case of coupons.

Mr. Benson: In normal circumstances it is very unlikely, but if the Amendment is accepted it opens immediately opportunities for tax avoidance, and once the Amendment is inserted it will be very likely.

The Attorney-General: That is why I suggest that the Committee should not accept the Amendment. As to the point put by the right hon. Member for East Edinburgh, I think the most satisfactory thing is to take the year in which the interest rights are realised. After all, these things are ex hy1othesi interest rights, and if a man chooses to sell in March something which is due in September it is proper he should be taxed in the year when the income accrues.

5.41 p.m.

Mr. Spens: I quite agree that there is a possibility that the Amendment might be used for tax avoidance, but it is perfectly easy to put in words to deal with that difficulty. I suggest with great respect that the Attorney-General should look at the matter solely as far as it affects voluntary transactions of any sort or kind, and in that case I think he will find that there will be great difficulty. May I add one word to what the hon. Member for Aberdeen South (Sir D. Thomson) has said. The words are that interest—
shall be deemed to be the income of the owner"—
and—
shall not be deemed to be the income of any other person.
Therefore, if anybody did what the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) envisaged, that is hand


over seven-year coupons to a charity, it is quite clear that the interest payable on those coupons must be regarded under the Clause as the interest of the donor and cannot under any circumstances be deemed to be the income of any other person. In these circumstances it is quite clear that neither directly nor indirectly will there be any income recoverable on behalf of the charity. If Income Tax is deducted at the source the charity will suffer to that extent and it means that the charity will be that much less valuable. However, I have raised all the points I desire to raise for the consideration of the Attorney-General and I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

5.44 P.m.

Mr. Hely-Hutchinson: I beg to move, in page 13, line 28, after the first "or" to insert "less than six months."
The Clause does not seem quite clear as to its possible effect on reorganisation and dealing with annuities. When reorganisation takes place the usual course is for cash consideration to be given to the holder of the security in consideration for his accepting a lower rate of interest. At the time that is carried out it is always regarded as a capital item and equivalent to reducing the original cost of the security he bought. Any holder of a bond who accepts such a cash consideration for giving up part of his interest would be selling or transferring the right to receive interest for a long period in the future and, therefore, we propose this Amendment in order to tie that down to transactions in the current year.
Let me give the Attorney-General an example from the field of annuities, because the definition in Sub-section (4) shows that the word "interest" includes annuities and shares of annuities. If somebody owns an annuity for £100 a year, he pays a definite capital sum down for it. If three years later the owner of that annuity goes to the insurance company and says that he wants to cut the annuity down from £100 to £50 a year, and asks whether they will give him back the corresponding amount so as to cut it down, surely, in those circumstances, he would be transferring the right to receive interest payable in the future. It is for that purpose, and in order to clarify the Clause, that I have moved the Amendment.

5.46 p.m.

The Attorney-General: I am bound to say that I had not appreciated what was meant by the wording of the Amendment until my hon. Friend explained it. He said that when companies are reorganising, there may well be cases in which a debenture holder previously entitled to 5 per cent. is asked, and agrees, to accept £200 down and 3 per cent. for the rest of the life of the debenture. My hon. Friend wonders whether the £200, which he suggests at present would be a capital receipt, would, under this Clause, be regarded as an income receipt. At the moment, I should have thought that the debenture owner was not selling or transferring a right to receive interest, because the company with whom he made it would not get a right to receive interest. The right to receive interest would be extinguished. However, I will certainly look into the point. I have not considered the provisions of this Clause in their relation to a case of that kind, and so far, it seems to me that a transaction of that kind would remain to be dealt with under the general principles of law. I will have the point looked into, but I think that the Committee will agree that it is one which did not leap to the eye on first looking at the Amendment on the Paper.

5.48 p.m.

Lieut.-Colonel H. Guest: I wish to raise a small point concerning reorganisation. Sometimes, when a company is being reorganised, there may be a preference dividend that is in arrears, and that may be satisfied by the transfer of a portion of the equity from the equity holder. Would the shareholder who received the equity or a portion of it to cancel his arrears be subject to any form of taxation by so doing?

5.49 P.m.

The Attorney-General: I think I can say fairly categorically, although it is a legal question and I am sure my hon. and gallant Friend will appreciate that it is a little difficult to grasp it straight away, that undoubtedly they would not be liable under this Clause. I do not see how transfers from equity in that form could be regarded as a sale or transfer of the right to receive any interest by the owner.

Mr. Hely-Hutchinson: In view of the remarks of my hon. and learned Friend the Attorney-General, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

5.5o p.m.

Mr. Spens: I wish to make an appeal to my right hon. Friend the Chancellor of the Exchequer on this Clause, as on the other Clauses in this Section. Clauses 18, 19 and 20 mainly concern one particular set of facts which could be dealt with in the courts, namely, funding bonds and the disposal of income arising from funding bonds. In accordance with an all-too-well established Revenue practice, instead of confining amendments of the law to the particular instances on account of which the law requires to be amended, these three Clauses are worded in the widest possible terms that could be devised. My hon. and gallant Friend the Member for the Drake Division of Plymouth (Lieut.-Colonel H. Guest) has raised a point, which has been mentioned before by many hon. Members who are interested in this Clause, concerning a possible outcome of it, namely, that in our every-day reconstruction of companies in the winding-up division—where there are outstanding rights to interest either on debentures or preference dividends declared as not paid, and possibly even arrears of unpaid preference or other dividends, and where, in the course of these reconstructions, the persons who ought to have received them do, in fact, receive some sort of consideration for those rights—suddenly, for the first time, this Clause will have the effect of making that type of consideration assessable, in some shape or form, to Income Tax. That is a sort of complication that has never had to be dealt with, as far as I know, except possibly where there has been a very definite consideration attributable to debenture interest overdue; but apart from that, overdue interest rights have generally been tackled on quite general lines, without there being this complication.
In the same way, this Clause will apply to any sort of assignments by individuals on income arising from any security for trust or any other purposes. It is difficult to see how far the net is being laid by the Revenue under this Clause. I ask my right hon. Friend to consider at a later stage whether it would not be possible to make these three Clauses deal specifically with the matter on which the

Government quite properly desire the law to be altered, and to make that a precedent in dealing with changes in the Income Tax law. In these Clauses there are wide general provisions which will cause a great deal of litigation in the courts as to what they are intended to include.

5.54 p. m.

Sir William Davison: I desire to lodge a protest once again, as I have done in the past, with regard to the obscurity of this and other Clauses in this Finance Bill, which lays down the principles upon which the taxpayers of this country are being asked to provide very large and ever-increasing sums of money, for the State. The taxes it imposes should not be set out in Clauses that are unintelligible. We have in the Committee some of the most able minds, which are accustomed to legislation dealing with taxation. Yet any hon. Member who has sat through the proceedings to-day must have been struck by the fact that one hon. Member after another, from the Attorney-General downwards, has repeated that he was unable to understand the Clause before the Committee. [Interruption.] I do not say that the Attorney-General used those words, but he asked for more time to consider simple Amendments, and if he had thoroughly understood the Clause he would not have required more time, but would have said, "The effect of this Clause is so and so, and that is why certain taxpayers will have to pay or will not have to pay." The mover of one Amendment, my hon. and learned Friend the Member for Ashford (Mr. Spens), who is no mean lawyer, himself admitted in his speech that he had read and re-read the Clause and was unable to understand it.
I say that if the Treasury and the Chancellor of the Exchequer are unable to frame a Clause dealing with taxation in words that are capable of being understood, not only by the learned gentlemen who are present here, but by the man in the street—the thousands of people who have to pay these taxes—they ought to abandon the particular taxes until such time as they are able to find words that will be understood by the people who have to pay them. It is an outrageous thing that citizens of this country should he asked to pay taxes when nobody really understands what is meant by the provisions imposing those


taxes. This Bill ought really to be known, not as the Finance Bill, but as the "Legal Profession Endowment Bill." It is impossible to understand this Clause and other Clauses, such as Clause 32, of which I confess I could not make head or tail—I do not know where the tail begins and the head ends—and I doubt whether the Attorney-General understands it. I desire to lodge a protest now on this Clause, as it is the first opportunity I have had of doing so this year. The complications of the Finance Bill are increasing year by year, and it is high time that the question of putting into concrete form and simplifying the form of taxation should be dealt with, and that Parliament should not be asked to pass further Bills dealing with Income Tax until the Treasury find phrases and forms which will make the taxes understandable by the people.

5.58 p.m.

Mr. Bellenger: I have no doubt that hon. Members will be in sympathy with many of the things said by the hon. Member for South Kensington (Sir W. Davison), but in fairness to the Government I do not think that it can be said that it is entirely the fault of the Chancellor of the Exchequer, who I believe is the instigator of these unfortunate Finance Bills, or even the Attorney-General or the drafting authorities. I am inclined to think that the reason we have clauses like Clause 19, which are so unintelligible to the man in the street—and, by the way, it is not the man in the street that this Clause is after, but far bigger game than the average taxpayer—

Sir W. Davison: Every man has to walk in the street.

Mr. Bellenger: —is the ingenuity of those so-called men in the street, and those who aid and abet them—members of the legal profession—in trying to get out of paying taxation; and the Chancellor of the Exchequer has to place before us what are admittedly unintelligible Clauses in order to try to obtain something which is likely to deal effectively with those people. However, I submit to the Government that it would be well to try to make this finance legislation as clear as possible. To do so is as much in the Government's interest as in the taxpayer's interest. If the Government want the sympathy and assistance of the

taxpayer, which they must desire nowadays, with the standard rate of Income Tax at 5s. 6d. in the £then they ought to make their proposals as clear as possible to the taxpayer without imposing on him the necessity of going to law in order to define his obligations. The rules of taxation should be made as simple as possible. We all realise, of course, that it is practically impossible to put a Clause of this kind into language which the average man in the street can understand. But we might, at any rate, ask those who draft these Clauses to do so in language which the judiciary can understand. We know how often learned judges have criticised the drafting of Bills of this kind. I support, if not all, at any rate, the main part of the contention of the hon. Member for South Kensington.

6.2 p.m.

Sir John Withers: I wish to reinforce what has been said by my hon. Friend the Member for South Kensington (Sir W. Davison) and if I had my way, I would be inclined to use some very much stronger expressions than he has used on this subject. At the same time I appreciate the fact that these complications are not the fault of the Government. In fact, I think the Bill is a splendid example of the ingenuity of the Government and especially of the Chancellor of the Exchequer. What I object to is that we should have legislation affecting everybody in the country, which nobody understands. I have been a practising lawyer for a long time and I have sat here this afternoon listening to things which sounded pure gibberish. I tried to intervene the other day in order to congratulate the Chancellor of the Exchequer on having produced in the Clause dealing with the Tea Duty, a Clause which, at any rate, somebody could understand. Now I sincerely hope some energy will be put into the task of bringing these various Measures into proper shape. What we want is that somebody should sit down with the Macmillan Report and to start de novo to codify the whole Income Tax law so that anybody can take it up and read it and understand it. If the Clauses are made wide enough it should be possible to do so. I appeal strongly to the Chancellor of the Exchequer to use his great influence and his great ingenuity in getting the Macmillan Report put into effect and a codification made of the whole law on this subject.

6.5 p.m.

Sir J. Simon: The complexity of Clauses in a Finance Bill is no new topic and I do not complain of the fact that it has been raised again on this occasion. I am not at all surprised that my hon. Friend the Member for South Kensington (Sir W. Davison) should, on the Question "That this Clause stand part of the Bill," have made the observations which we heard from him. But there are one or two things which, in fairness, ought to be remembered on what I may call the other side of the account. In the first place, we are dealing in this Clause with a very complicated subject which has been dealt with in a large number of judgments and argued out on a number of very precisely reasoned cases. It is absolutely necessary in the public interest that we should state the changes which we want to make in terms which those who devote their minds to this subject believe will really stop the hole that we are trying to stop. Indeed, in this case we have a number of rather complicated holes—a network, possibly—and the difficulty is to stop one set of holes, while at the same time ensuring that another set of holes will not be made in a different but analogous direction. That is really the answer to those who say, "Why cannot you apply ordinary commensense language to these matters and write these things out in words of one syllable and two or three sentences?" When you are dealing with a complicated subject which is capable of a great many ramifications you must, in the language which you use, have regard to the subject-matter.
I am glad to have this opportunity of making another observation. It is rather the fashion, if I may say so, as an old Member of the House of Commons, for us legislators here to speak with great complacency and sometimes with a slight touch of contempt of the drafting of Bills. The drafting is done by very skilful public servants, namely, the draftsmen. I have in the course of my experience as a Minister had to deal with a number of draftsmen all of whom have given me their help just as they have given their help to whatever Government happened to be in office. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) knows very well, because he has been Financial Secretary

to the Treasury, how these public servants devote their whole skill to the task of getting these things stated as well as possible. Therefore, we should not get into the habit of lightly speaking as though these things were made unnecessarily complicated.
I may mention, for what it is worth, that all my life I have tried as far as I could to cultivate the habit of saying things plainly. I have always tried to state what I had to state as clearly as I could, whether I said it or wrote it. A Chancellor of the Exchequer who happens to have had experience, as I have had, as a Law Officer, knows very well when he comes across Clauses or Amendments which are put in unnecessarily elaborate language that it is his duty to the House of Commons or the Committee to do his best to simplify the language in which these proposals are framed. With my knowledge, I would suggest that the draftsman in drawing up these Clauses has not been engaged in any unnecessary elaboration. He has been trying to state the thing as well as he could, having regard to the subject-matter and the purposes which we are trying to serve. In many consultations connected with this Bill, I have myself gone into this question. I have tried my own prentice hand, once or twice, perhaps not very successfully, at putting things into simpler terms, but I am completely convinced that, having regard to the method which Parliament adopts, it is not right to blame the undoubted complexity of these Clauses upon any want of skill or of purpose on the part of those who serve the whole House of Commons in this respect.
There is another method, of course, which might be applied. I believe it is applied to quite a large extent in some Continental countries, but we have never applied it here. It is possible to imagine taxing legislation applied to the citizens of this country not according to the exact words of a Statute which has passed section by section and line by line through the House of Commons, but on some more or less general proposition, stated in fairly simple terms, no doubt, and embodied in a Statute, and then left for its application to some organ of the executive or some special committee which would develop what may be called the jurisprudence of the section, and what many people in their innocence would call its plain meaning. We have never done that. We have


always considered—and I think this is right—that, on the whole, it is better to have Sections of Acts of Parliament—which some of us might regard as rather elaborate—and that we should insist on the letter of the Section being complied with rather than that we should give the wide discretion, which I have described, to some outside body.
My hon. Friend the Member for Cambridge University (Sir J. Withers) just now expressed a wish that the Macmillan Committee's report could be put into an Act of Parliament and rather implied that if that were done, we should all live happily ever after, and that the Income Tax law could then be read by people as if it were a sort of three-volume novel. I ask my hon. Friend not to be too sure. I have had a look at the form into which some of the recommendations of that committee would have to be put, and while I greatly admire the results of the years of labour that have been devoted by the committee to the subject, I think it is a little sanguine to suppose that when the happy day desired by my hon. Friend arrives and we have swept away all these Statutes and substituted the result of the Macmillan report, we should find that we had a code of taxation so simple that a child could read it on the way to school. Taxation is a complicated thing, and complicated things have to be stated in complicated ways. You have to provide for exceptions, and so forth. For my part, while I think we ought to do everything we can to simplify the language of Statutes, and while I have not the slightest sympathy with any attempts to obfuscate or make more elaborate that language, yet we must recognise that the work of drawing up these Statutes is very complicated work indeed, and we ought to recognise the very great debt which we owe to those skilled people who devote their lives to trying to express the thoughts, possibly the inverted thoughts, of Ministers and the wishes, the doubtless very serious wishes, of the House of Commons in the necessary language of an Act of Parliament.

Sir W. Davison: The right hon. Gentleman referred to me as though I had made some criticism of the draftsman. May I say that I had no such idea at all. The point at issue does not concern the draftsmen who, with great skill have

done their best and a very good best. It concerns the instructions which the draftsmen have had from the Treasury who have given them a practically impossible task. When the Treasury find that some little piece of the Income Tax framework is altered by the courts, they instruct the draftsmen to put in a plug in the barrel to stop the leak instead of scrapping that part of the barrel which has given way and giving instructions to the draftsmen to make a new one in simple form.

6.13 p.m.

Mr. Hely-Hutchinson: While sympathising with my right hon. and learned Friend the Attorney-General, I wish to ask one more question with regard to the interpretation of Clause 19 with particular application to the question of defaulted bonds. As I read the Sub-section (1) I understand that if the holder of a coupon bond of a face value of£3—a defaulted bond—sells that coupon or negotiates it through one of the regular coupon dealers or paying agents here, under the rules of the Inland Revenue Department, for 5s., he will have to pay tax on the 5s. But if he sells it, say in Amsterdam, for 10s., he will have to pay tax on£3. I may be wrong in that interpretation. I thought it was a question of draftsmanship until I read what my right hon. and learned Friend said on the Money Resolution on 4th May. He said in effect that if anyone sold to someone other than a coupon dealer, it would be taken as prima facie evidence of intention to evade taxation. If that is the case I would like to enter a protest against that view. It may often happen that the owner of a coupon of a defaulted bond which happens to be settled by means of blocked currency, is able to get a much better price for it by dealing with somebody who has commercial or other relations with the country in which that currency is available, whereas the regular coupon dealers or paying agents in England have not the same facilities and would not be able to give him as good a price as he could get by direct negotiation. Moreover, if my interpretation is correct, this enables the coupon dealers and paying agents within a limited sphere to get into a ring and to buy coupons very cheap on their own account if they wish to do so. I merely wish to raise the point with my right hon. Friend and ask whether he will give it his consideration.

6.15 p.m.

Mr. Assheton: I should like to say that we do not complain of the draftsman. As the hon. Member for South Kensington (Sir W. Davison) said, his instructions are very often difficult to carry out. The difficulty, to my mind, seems to lie here: You get a case of a particular gap which the Treasury wishes to fill up, and instead of instructing their draftsman to fill it up, they instruct him to fill up the gap and to cover everything else he can think of. All sorts of results follow from the drafting of this Clause that were never originally intended, and it is impossible to foresee what will be all the consequences of such a complicated Clause. I suggest to the Attorney-General that this Clause 19 is an appalling Clause. It is difficult to understand, and I very much doubt whether anyone really knows exactly what its meaning is. I take, as an example, the question put by the hon. Member for South Aberdeen (Sir D. Thomson), to whom the Attorney-General replied, with regard to the question of the assignment of income in the case of a charity. I must say that I thought the reply of the right hon. and learned Gentleman was very unsatisfactory. He did reply as to what the intention of the Clause was, but it still appeared to me to be very doubtful whether in fact the Clause says what he intends to say. I would ask the Attorney-General whether before the Report stage he will make it clear that in fact the Clause is now in a shape which will carry out the intentions which he indicated to the hon. Member for South Aberdeen.

6.18 p.m.

Colonel Gretton: I have only one or two observations to make on the general effect of this Clause. I think everybody recognises that it is undoubtedly desirable that taxation should be stated in as clear terms as possible, that there should be no doubts as to what is intended, and that what is intended should not be exceeded. Unfortunately, these wide-sweeping nets are not liked, and a good many cases are brought in. When there is any doubt—and there is a great deal of doubt in this Clause—those doubts should be cleared up, and the Clause should state definitely what it means and leave out what it does not mean. A tendency is growing up of late years to tighten up the application of many of these Finance Acts. The Treasury people

look upon it, rightly, as a duty to the public to get in as much taxes as they can, and undoubtedly claims are made which in many cases are doubtful. The only way to deal with those claims, if the taxpayer objects, is to go to court, which is a most expensive operation, because one cannot go to court in these matters without really expert advice, which is costly, and often it leads lo appeals. The old rule that where there is a doubt as to the meaning of taxation that doubt should be resolved in favour of the taxpayer and not in favour of the Crown has, it seems to me, been set aside. The taxation now, for one reason or another, is often pressed unduly on the taxpayer where there is a case in doubt. Therefore, I add my plea to those which have already been made that these doubts, when we are legislating, should be cleared up, that it should be clearly stated what the tax is intended to do and who the people are who are intended to pay, and that care should be taken that those who are not intended to pay are left out and are not required to defend themselves by a long, complicated, and difficult process.

6.21 p.m.

The Attorney-General: I would like to dispel a suggestion which was made by an hon. Friend behind me that the genesis of this Clause was that it was intended to go far wider than anything rendered necessary by the facts of the case. We believe that this Clause does restate the general principles bearing on the case. It is the interest which is paid which is the measure of the taxpayer's liability, and not the proceeds which he gets from the income.

Mr. Pethick-Lawrence: Surely the right hon. and learned Gentleman must mean the interest due to be paid?

The Attorney-General: The assessment comes in that year, although the amount in respect of that year may not be ascertainable until later. If we make provision for events that are wholly unlikely to take place, I am afraid that we shall get even more violent complaints than we have had already.

Mr. Pethick-Lawrence: The question arises here in the case of those bonds which are in default.

The Attorney-General: The ordinary case where interest is being paid regularly is quite clear. In the case of a


defaulted bond, it all depends on the nature of the default. With regard to charities, no rights of charities are affected by this Clause. With regard to other points, I will study what has been said. We may not all at times express ourselves with complete clarity, even when making our speeches in this House, and it is sometimes difficult to follow an hon. Member while he is speaking, but there is an opportunity afterwards of studying what he has said.

Question, "That the Clause stand part of the Bill," put, and agreed to.

CLAUSE 20.—(Charge of tax on funding bonds issued in respect of interest on certain debts.)

6.25 p.m.

Mr. Spens: I beg to move, in page 16, line 12, after the first "the," to insert "market."
This Amendment, to insert the word "market," is moved in order that we may have some statement from the learned Attorney-General on exactly what basis the bonds will in fact be paid, and how they will get at the amount of interest equal to the value of the bond at the time of issue, there being obviously a great difference, on occasions, between the nominal value of a bond and its market value in this country.

6.26 p.m.

The Attorney-General: One or two questions were raised earlier in our discussions with regard to this question of the valuation of funding bonds, and I might pick them up and deal with them now. I might say that in a great many cases in which these funding bonds are distributed to agents in this country no question of valuation has arisen, because the distributing banks or houses have received "X" pounds' worth of bonds, and they have deducted Income Tax in bonds and handed over to the Revenue Income Tax in bonds—with Income Tax, say, at 5s. in the —, a quarter of the bonds they received from the foreign Government—and distributed the remaining three—quarters among those entitled to the bonds. In that case you avoid any difficulty about evaluating the money's worth of the bonds. But there are cases in which it has not been possible to arrange to do that, because the amounts

are small or the denominations of the bonds do not enable that to be done, and in those cases the person receiving the bonds in lieu of his interest is directly assessed on the value of the bonds.
Let me say, first of all, that this is a perfectly general case which has been applied over many years in other connections. It became obvious at an early stage in the development of Income Tax law that a very easy means of avoiding income Tax was available if no tax had to be paid on money's worth. The principle is that the tax should be paid on the value of the money's worth. Those are the words in the Clause—the value at the time of issue—and I suggest that it is better to keep those words in that form and not to try and particularise them in greater detail. In the case mentioned by my hon. Friend the Member for Tamworth (Sir J. Mellor), the principle on which the law proceeds is to take the value in January when the bonds were issued and disregard subsequent fluctuations in one direction or another,
Broadly speaking, the value that is taken is the fair realisable value at the time when the bond is issued and in the circumstances in which it comes to the purchaser. The Commissioners should not be tied down with too great particularity to, say, some particular quotation at 12 o'clock on a particular day. They have to look at the general circumstances. In many cases bonds are realised within a short time of their receipt, and in the absence of any special circumstances that value would be taken as the value for Income Tax purposes. If a man decides to hold on to his bonds instead of realising them, as he does with other securities in order to speculate whether the value will go up or down, his Income Tax is assessed on the basis of the fair realisable value at the time he gets them. I suggest it is better to leave the word "value" in without its being qualified by "market." I am not sure what market value "is. If "market value" were put in the Commissioners might think they were constrained to take the Stock Exchange quotation on the day of issue, and that might be an unfairly high figure to take. What they consider is what the taxpayer could have got for his bond if he decided to realise it within a reasonable time of having received it.

6.33 p.m.

Mr. Bellenger: The object the hon. and learned Gentleman had in putting down the Amendment is a good one because this is a case where we ought to get as much simplicity as we can. I am not quite certain of the learned Attorney-General's explanation. As I understood him, he said that the value would be the value in the January of the year in which the bonds were issued and that it was not necessarily the Stock Exchange value, if there were such a value at all. If there were no Stock Exchange quotation what would be the value which the Revenue would place on those bonds? The learned Attorney-General has excluded the possibility of commodities being issued in satisfaction of interest claims, but I am not at all sure whether, in these days of bartering, it might not happen that for a defaulting Brazilian bond coffee might be issued to those entitled to the bonds, and in Germany, perhaps, machinery or something else. We ought to know what is in the mind of the Attorney-General if there is no Stock Exchange value. How are the bonds to be valued?

The Attorney-General: I did my best to explain. It is the fair realisable value. There are cases over and over again in which securities have to be valued where there is no Stock Exchange quotation. The people entrusted with the duty of valuing them—in this case the Commissioners—can hear evidence as to what is the fair realisable value of the securities in question. I agree that Stock Exchange quotations are very good evidence of what can be got. In other cases the Commissioners have to do the best they can, and what they direct their minds to is the value which can fairly and reasonably be realised by the taxpayer at the time of issue.

Mr. Spens: I put down the Amendment in order to make certain that in cases where there is any difficulty in ascertaining the value there should be no possibility of the nominal value being taken. I prefer the fair realisable value, and if that is the basis on which the bonds are to be valued perhaps my right hon. and learned Friend will consider between now and the Report stage inserting some provision to that effect.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

6.38 p.m.

Mr. Denman: This Cause is already in force in accordance with the Resolution that we passed at an earlier stage. That being so, can we be told how it is operating? I believe this Clause to be very lucid and simple, but it would be to the convenience of many Members to know exactly what is happening. A bank holds bonds and receives funding bonds by way of satisfaction of the interest due. It then proceeds, I understand, to retail a portion of those funding bonds for the purposes of the Revenue. When there was a 5s. Income Tax that was relatively simple, but with a 5s. 6d. Income Tax there will, I suppose, in most cases be some additional amount due to the Revenue. Will the bank thereupon debit the bondholder's account with the excess amount beyond that which is satisfied by the funding bonds retailed to the Treasury? I presume that will be so. So far the process is relatively simple.
When we come to the Surtax payer it is not quite so easy. Assume that a funding bond has been paid this month. Next spring the Surtax payer will have to fill in his form for Surtax payable in January, 1940. He will then have to discover two unknowns—the value of the bonds, which he has no means of knowing, and the date of issue. Are there arrangements by which the bank's information as to the date and the value will be accepted for the purposes of Surtax returns? If so, of course, the Surtax payer can make out his return with fair ease, but if he has to satisfy the Revenue with evidence of his own with regard to the value and even the date of issue, he Will be put to considerable trouble. What procedure is being adopted and whit sort of instructions have been given to the banks and collecting agents in this matter?

6.41 p.m.

Mr. Assheton: I world like to enter a mild protest against funding bonds being assessed for Income Tax purposes. The Attorney-General said that they were assessed because they were money's worth, but I suggest that they are not always. Suppose you lend £1,000 to a foreign Government, which decides not to honour its obligations. On 1st January, instead of receiving '3 per cent. interest and a cheque for £30, you receive a piece of paper promising you what is already due to you. you are not receiv-


ing anything that is worth anything. When you get it, that which you have received from the foreign Government together with your original bond is worth exactly what the original bond was. You receive that piece of paper and it is a false assumption that that funding bond is in fact income. It may be that one day, if the foreign Government honours those funding bonds, they then become income. They then ought to be assessed for Income Tax as income. If the Chancellor were fortunate, instead of these bonds being assessed for Income Tax at 30 per cent. of their par value, they might be assessed at 100 per cent. of their value for Income Tax. On what principle does the Chancellor base his suggestion that these funding bonds are either money or money's worth?

6.43 p.m.

Lieut.-Colonel Sir A. Lambert Ward: The funding bonds which one receives in settlement of interest due from a foreign Government are negotiable in the market, and the market value is a definite indication of the value of the bonds to the holder. In the case which my hon. Friend the Member for Rushcliffe (Mr. Assheton) imagined, you lend £1,000 to a foreign Government, which defaults on its obligations to the extent that it cannot or will not pay in gold or in the currency of the country in which you reside the interest due. Instead of that, it hands over funding bonds of the nominal amount of the interest due. Those bonds can be sold at the Stock Exchange price, which, in my opinion, is a fair indication of the' interest which one has received. If you put one of those bonds on the market, the price you get will indicate the value of it and indicate accurately the amount of Income Tax you ought to pay, because it is something you have received in lieu of actual interest.

6.45 p.m.

Mr. Assheton: I quite agree with a large part of what my hon. and gallant Friend has said, but let me put the position in this way. The hon. and gallant Member receives his funding bonds from foreign Government. What happens? piece of paper comes from that foreign Government. He then finds somebody in the market, or elsewhere who is willing to give him something for it. No income has come into this country, no money has come from abroad; some other citizen of

this country is prepared to give my hon. and gallant Friend some consideration for a promise to pay. The better the Government which issues these bonds the better will be the consideration; but no money, I repeat, has come into this country. What the Chancellor of the Exchequer is going to do is to tax an income which has never come into this country, and that means that somebody in this country has got to sell a certain proportion of his capital to find the money for this tax. It is but another instance of the Treasury absorbing capital when they think they are taking income.

6.47 p.m.

The Attorney-General: The hon. Memmer for Rushcliffe (Mr. Assheton) has raised rather an abstruse point, but I am bound to say that I think my hon. and gallant Friend the Member for North-West Hull (Sir A. Lambert Ward) really put the matter in the common-sense way and as I think Parliament would intend to deal with it. The hon. Member for Rushcliffe made a point about a bond being no more than a piece of paper. A cheque for a million pounds is only a piece of paper, but nobody can suggest that because a cheque is only a piece of paper there is no obligation to pay Income Tax. If a man receives a foreign cheque what he does is to sell it through his bank, just as a foreign bond is sold through a stockbroker. Suppose a foreign government paid 100,000 francs to a bank here for distribution. [Interruption.] Perhaps it will save any criticisms if, instead of mentioning the currency of any particular country, I take the case of the State of Ruritania, arid suppose that it has issued bonds of 1,000 units bearing interest at 10 per cent.—the credit of Ruritania not being very good. Every year the holder of one of those bonds would expect to get 100 units as interest. Normally he would get a cheque for 100 units, which he could sell to a bank, and for which he would receive a sum varying according to the rate of exchange. He would be assessed accordingly on the money's worth of that part of his income, because Income Tax naturally descends in terms of sterling; he would be taxed on the commercial equivalent of the foreign cheque or warrant.
Then suppose that Ruritania gets into a bad way and, instead of sending 100 units sends only 50 units in payment of


interest. Nobody would suggest that the recipient should not pay Income Tax on what he got from his bank for the cheque for 50 units. Next suppose that instead of getting a cheque for 100 or for 50 units he gets another piece of paper which is a bond for, say, 100 units which he could sell in the market and get for it the same amount as he would get from his bank for the cheque for 50 units. There may be some subtle argument, which I have not appreciated, to show that a tax on that money would be a tax upon capital, but it strikes me that whatever amount the man has received becomes part of his income. He is entitled, say, to half-yearly interest on his security, and he has got a piece of paper which he can sell for £5 or £10. That is income, and is to be treated as income, and I should have thought it was not an unreasonable thing to say that he must pay Income Tax upon it. I will consider later the question of whether, from some other point of view, it is to be regarded as not being income, but I think we can for this purpose of Income Tax treat it as income. These, I believe, are the real considerations upon the point which has been raised by my hon. Friend the Member for Rushcliffe.
Now let me tell my hon. Friend the Member for Central Leeds (Mr. Denman) what the procedure is. In certain cases the procedure is to settle the payment of Income Tax by handing over an appropriate proportion of the bonds to the Revenue and the appropriate portion to the persons entitled to the money. He says that there may be fewer cases in which that can be done now with Income Tax at 5s. 6d. than when it was 5s. If that cannot be done, the bank or paying agency in this country can hand over the bonds in toto to the recipients, not attempting to make any deduction for Income Tax purposes. The Income Tax payer, who has received the gross amount of the bonds to which he is entitled, is then directly assessed. The issue then is between the taxpayer and the Commissioners of Income Tax as to what is to be regarded as the realisable value of the bonds on the basis I have just described. If the Stock Exchange quotation is reasonably constant that can be taken as indicating the value. However, the taxpayer can put forward any representa-

tions he likes on the point, and if necessary it can be fought out before the Commissioners as an issue of fact and evidence can be called.
I gather there is not in practice often any dispute about this matter. Most of these cases are cases in which there are a substantial number of the holders of these bonds in this country, and therefore when funded bonds come over there will be a substatntial number of cases in which people will tell their stockbrokers or banks to realise the bonds. I have no doubt that is what is ordinarily done, and possibly a great many Members of this House may have done it, or it may have been done for them without their realising it. Of course that value also settles the value for Surtax. I quite agree that in cases where the payment of the standard rate of Income Tax is disposed of by the deduction of bonds the Surtax payer can take up with the Commissioners the question of their value and discuss it with them. If he thinks too high a value is being set upon the bonds he can take the matter before the Commissioners and offer his own evidence, but I do not think those are cases in which much difficulty arises.

Mr. Denman: I would ask the Attorney-General to be quite definite on these points—that a mixed payment of half bonds and half cash will not be permissible and that in the case of Surtax no payment by bonds will be permissible at all.

The Attorney-General: In the case of Surtax no payment by bonds would be permitted. I will look into the other point. I would not like to pledge myself at the moment that there might not be a case where it would not be substantially to everybody's convenience for the claim to be met by what I call a bond deduction accompanied by a small cash adjustment—that is in cases where a small amount is involved—but whether that can be done I will inquire.

Sir Robert Tasker: Will the Attorney-General say why bonds should not be accepted in payment of Surtax?

The Attorney-General: Because they would not be there. The position arises in this way. Up to the time of the default and the issue of bonds instead of cash the bank in this country would be receiving from the foreign Government, say, £100,000 with which to pay the in-


terest in this country. The bank deducts the Income Tax, £25,000, and distributes the remainder of the £75,000. Suppose that instead of getting cash the bank receives bonds. Where it could be done it was felt to be for the convenience of everybody if the Revenue were willing to accept in lieu of the standard rates of Income Tax, say, a quarter of the bonds which came over for distribution, leaving the bank with the remaining three-quarters of the bonds to be distributed among the other holders. The Revenue said they were prepared to accept that as a convenient arrangement. The Revenue got money's worth and the taxpayer was not inconvenienced. In the case of Surtax, which arises only where somebody has an income above a certain limit, the taxpayer is not called upon to pay Surtax until some months later, and he might by then have sold the bonds, and there would be no conceivable reason why he should pay Surtax, which would be calculated on his total income, including the money's worth of those bonds, in securities any more than anybody else, and the usual rule would apply to him. I do not think there could be any justification for saying that because a part of the income on which he was paying was in the form of foreign bonds that therefore he should be entitled to pay Surtax in bonds.

Sir R. Tasker: Payment of Surtax is delayed 12 months, being calculated upon the income derived the year before. If it is equitable for the authorities to accept payment of Income Tax in bonds why if the taxpayer is still in possession of the bonds should not the Treasury accept bonds in payment of Surtax a year afterwards?

The Attorney-General: The Treasury can only accept bonds because it enables them to get the tax at the beginning. That consideration does not arise with Surtax and there is no reason why the should accept payment of Surtax in bonds.

Question, "That the Clause stand part of the Bill," put, and agreed to.

Clauses 21 and 22 ordered to stand part of the Bill.

CLAUSE 23.—(Amendments as respects avoidance of tax by transfer of income to persons abroad.)

Amendments made:

In page 20, line 29, after "income," insert:
which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income.

In line 30, leave out "outside," and insert "out of."

In line 31, leave out from beginning, to "shall," in line 33.—[The Solicitor-General.]

6.59 p.m.

Mr. Benson: I beg to move, in page 21, to leave out lines 5 to 16.
The lines which I propose should be omitted are a qualification of the original form of this proposal to leave out of consideration bona fide transfers for business purposes as it appeared in the Act of 1936. The Solicitor-General will remember that we pointed out that there was considerable opportunity for evasion as the Clause in the Act of 1936 was drafted, and at the time pressed the matter to a Division, and as it turns out the Government have had to come very much more closely to the line we took than they were then prepared to do. But they have still not met our real fundamental objection to this proposal, that is, that where a transfer abroad has taken place, not for any avoidance purpose but purely for the bona fide commercial convenience of the transferor, that this Clause should not apply. The first objection to such a proposal is that it is legislating upon a very vague and difficult thing to assess, and that is the motive of an individual. Whether he is assessed to tax or not depends entirely upon the opinion formed by the Commissioners as to what his motive is for the transference, and it is very easy to cloak motive. The transferor has only to show that his transfer has been made because it was to his own bona fide commercial advantage. No matter how small that advantage may be, if he can establish that he had a real commercial motive for doing it there is no ground for the Commissioners to look further, although the real motive behind may have been a desire to avoid tax. The Commissioners would be prevented from making any further investigation.
There is, I think, an even stronger objection to this proposal than that. Let us assume a bona fide commercial transfer in which no question of tax


avoidance ever entered into the head of the transferor. Even granting that position, there is no ground for exempting the transferor from the operation of this Clause. What the Treasury is saying is: "Here we have an honest man; he has made a transfer for a perfectly legitimate purpose. Let us take him out of the operation of this Clause, let us give him the opportunity of enjoying tax-free income." Take a very common case in which a bona fide reason for transfer abroad can be made out. People have foreign interests, and in very many cases the transfer is made for a variety of reasons, for example, that those foreign interests should be worked by a limited company, possibly a non-resident company. There are very many reasons why that should happen. Given that situation, and given an expanding business what happens? The transference abroad has been made to the limited company for perfectly legitimate reasons. The limited company finds the business expanding, it finds that it can absorb in that expansion the profits that are made, so no dividends are declared by this limited company. It has a perfectly legitimate excuse for not declaring dividends, namely, that it is absorbing every penny of its profits into its business. Now there is nothing there which suggests, or which could be construed, as tax avoidance, either in the original establishment of that limited liability company abroad or in the absence of declared dividends—both have perfectly legitimate explanations. So this limited company steadily builds up reserves which ultimately come back in the form of capital to benefit the transferor in this country. In those circumstances the transferor, although he had no intention or purpose of avoiding tax, quite definitely does avoid tax, and I see no reason why we should give him a purely fortuitous advantage in the way of avoidance of tax when he had no intention of claiming such avoidance and when such avoidance is to my mind entirely unjustifiable.
There is one objection that the Solicitor-General may urge against including this particular form of transference within the operation of this Clause, and it is that the operation of this Clause is normally very drastic, and if a legitimate bona fide business transfer abroad were brought into the ambit of this Clause that business

would be treated more drastically than a similar company inside the country; in other words, that if this Amendment were carried no untaxed reserves of any kind whatsoever would be allowed, but every penny of profit would be treated as the income of the transferor and would bear tax at the full rate. That is the only objection that I can see. The way to meet that is to combine with Clause 23 the protection which is already given to companies under the control of not more than six persons. You then can put the foreign bona fide company on exactly the same footing as an English company. I would quite willingly have mitigated the severity of the Amendment by such a proposal had I felt that my drafting powers in dealing with such a complicated subject as this were equal to the task, but it is not beyond the capability of a Government draftsman to do it. I think there is a perfectly legitimate case for treating a bona fide commercial transferor no more severely than an English investor, but on the other hand I cannot see that there is any case for treating him far more leniently, as the words in this Clause unquestionably do.

7.9 P.m.

The Solicitor-General (Sir Terence O'Connor): I was glad that the hon. Gentleman the Member for Chesterfield (Mr. Benson), at any rate, recognised that his proposal was a drastic one. It would indeed be a very drastic one. May I just remind the Committee of what Clause 23 proposes to do? What we are trying to do here is to stop up several loopholes that have been proved to exist in Clause 18 of the Act of 1936. That Clause had a little Preamble all to itself. I will not bother the House with the Clause, but I would like to read the Preamble because it is rather exceptional in the way of a Clause in the Act:
For the purpose of avoiding by individuals ordinarily resident in the United Kingdom of liability to Income Tax by means of transfers of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the United Kingdom, it is hereby enacted as follows:
What was enacted was that if the individual claimed the power of enjoyment of that income which he transfers, then the income, notwithstanding the transfer, was to be treated as his. If he showed


that the transfer or the associated operations were mainly for some purpose other than the purpose of avoiding the liability to tax then the income would not be treated as his. We have done many things as the result of the experience we have had of the operation of that Clause, and we propose to do a great many things in the present Clause to tighten that up. First of all, we are narrowing down the power to enjoy that income. The power to enjoy will be so stringently defined after this Clause becomes law that many instances can be pointed to where it might have been doubtful whether a power of enjoyment would have remained under the present law. We propose to do away with that proviso which says that the Sub-section shall not apply if the transfer was effected
mainly for some purpose other than the purpose of avoiding liability to taxation.
That entirely disappears, and in place of it we substitute the two alternative tests that appear on page 21, line 8, onwards—(a), and (b). I will not deal with the first one because the hon. Gentleman did not, but he was wrong in suggesting to the Committee that in the case of a bona fide commercial transaction that was all that need be proved. More than that has to be proved. It has also to be proved that the transfer was not designed for the purpose of avoiding liability to taxation. There is a double barrel there.
What the hon. Gentleman, I think, recognised was that the answer that might be given was that his procedure would catch bona fide cases. I am bound to tell the Committee that that would be the exact result. It is clear that there may be scores of perfectly genuine bona fide commercial transactions that you do not want to hit. This is, after all, a provision solely and exclusively for the purpose of dealing with tax avoidance; it is not dealing with genuine honest business at all. Let me just instance to the Committee the kind of case that, unless we have some provision of this kind, would he hit—and I can assure the hon. Gentleman that the provision has been drawn extremely narrowly, after long deliberation and with very great care, and in the narrowest possible way that is consistent with anything like fairness to genuine transactions. Suppose you have the following case, which I take as an actual genuine instance that we do not want to catch. B in this country becomes a partner in

a partnership carrying on its business wholly abroad, and controlled abroad. He transfers assets to the partnership to be used for the purposes of the business. Apart from Section 18 which we are amending here—and the whole purpose of this Clause is to amend it—he would be liable to tax only on his share of the partnership profits actually remitted to this country. Unless we have a motive test of this kind he will be liable for the whole of his share of the profits of the business, whether they are remitted to this country or not. That is an instance in which we should be putting a perfectly genuine transaction into a worse position than the existing law puts it, in an endeavour to deal with a wholly different species of transaction.

Mr. Benson: If he becomes partner in a foreign business how does he in any way expect to have any power of enjoyment of his partner's income?

The Solicitor-General: Without a motive test of this kind he certainly has power to enjoy, under the definition in the 1936 Act—I will not refer to that definition in detail—as strengthened by the words which we are adding in this Clause. I can assure hon. Members that the words "power to enjoy" are extremely wide. Unless I am to bore the Committee with a long legal dissertation on the exact operation of the Clause, I ask hon. Members to accept my assurance that that case would be caught unless we give the exemption. Nobody in the Committee would doubt that an effort to prevent tax evasion which caught cases of that kind would be an intolerable injustice, and that you must make some loophole through which cases like that can be exempt.
Let me take another case, equally genuine. This is a case in which A, in this country, sets up a company abroad to carry on a trade or business and he transfers to the company assets for the purpose of the business. He receives in return shares in the company. That individual would be liable, apart from Clause 18, to tax on the dividends of the shares that he receives in the company, but without the new motive test he would be responsible for the whole of the profits of the business. We could not allow an anomaly of that kind to be established. Those are two instances, but I could give many more, taken from a genuine selec-


tion made of cases that might be caught, indicating that we must have a motive test in order to let the genuine cases through.
We have made this test pretty tight. Let me consider it for a moment. In the first place, (a) covers the case of a transaction which is not commercial. The burden rests upon the person who does not wish to be caught by the Clause of proving to the satisfaction of the Commissioners that the purpose of avoiding liability to taxation was not the purpose or one of the purposes, not only of the transaction but of associated operations, or any of them. If it is not a commercial transaction, it has to get through that mesh. A good many transactions take place in which the purpose is not necessarily avoidance of taxation, but it may be one of the purposes. Some people may think it is not wholly to be deprecated that a business should be organised so that it would attract less taxation in one structure than in another, and that that is not a case of tax avoidance at all. In the case which is not a genuine commercial transaction, there is an extremely close mesh to go through.
If it is a bona fide commercial transaction it has to show the Commissioners that it is such, and also that it was not designed for the purpose of avoiding liability to taxation. We think that these measures are stringent enough for their purpose. My hon. Friends behind me think that they are a great deal too stringent, and I have elaborated the argument a little on that account. Hon. Members opposite have been putting the contrary view, believing that they are not stringent enough.

Amendment negatived.

7.21 p.m.

Mr. Spens: I beg to move, in page 21, line io, after the first "the," to insert "principal."
I was interested in what my hon. and learned Friend the Solicitor-General was saying, but I still am of the opinion that the mesh in paragraph (a) is too small. When you have a test relating to the avoidance of taxation you must not unduly hamper what may be a beneficial transaction. It is true that commercial transactions are dealt with in the next paragraph, but it is difficult, when you are

deciding what is a perfectly genuine non-tax-avoidance transaction, to put out of your mind what the effect on your own taxation will be. Suppose a man has to make an allowance for his wife from whom he is divorced or living apart. He desires to do generously by her, and finds that if he allows her £350 a year she may be able to live on it, although it is pretty narrow. It is pointed out to him that if he took it out of a legal obligation and did it in a certain way he could reduce his taxation by about £50, and could increase his wife's allowance to £400. That would be a non-commercial transaction in which it was impossible to say that avoidance of taxation had not been a substantial motive in what he had decided to do. We could not regard it as the main purpose, but we could not say that avoiding taxation was not a factor in his mind in deciding how far to go.
There are thousands of transactions in which a court or the Commissioners might say that because they took into consideration the effect upon taxation and transferred to somebody else a little bit more because they could afford to do so by reason of their taxation having been reduced, they were doing something which had for one of its purposes the avoidance of tax liability. That is why I suggest to my hon. and learned Friend that he should substitute for what was in the previous Act some such words as "the main purpose." For some reason or other the Government do not like the words "main purpose," which this House adopted in 1936. If my hon. and learned Friend adopts "the principal purpose" in non-commercial transactions, where the principal purpose is avoidance of taxation, I suggest that the revenue will be amply and fully protected. It is difficult in a non-commercial transaction for anybody to say honestly on oath that avoidance of taxation might not have been one of his purposes.

Mr. Lees-Smith: I am not learned in the law, but the hon. and learned Gentleman has just given an illustration which bewilders me and leads me to the conclusion contrary to that to which he wishes me to come. Perhaps he will clear up my difficulties. He mentioned the case in which a man gave his wife £350 a year and found that by making it £400 a year he could avoid Income Tax. He reduced his Income Tax by £50, but while he is enabling himself to give his wife an extra


£50, the State loses £50, and other taxpayers have to pay so much in addition. Why should the State encourage that kind of thing?

Mr. Spens: I could not have made my meaning clear. The principal motive of the man is to do the best he can by his wife, who is the person in need of an allowance. He finds that by giving his wife that little bit extra he can reduce his own Income Tax, and he is fulfilling what he considers to be a much stronger moral obligation. I agree that the right hon. Gentleman is perfectly entitled to say that he can do that only by reason of the fact that he becomes liable to a smaller sum in Income Tax, but that is a very different motive from that of the tax avoider. He is simply told, "What your wife ought to have is £400," and he says, "I cannot possibly afford it; she will have to do with £300 or £350 a year." It is pointed out that if he puts up £400 a year he will do so at the expense of the State.

Mr. Lees-Smith: Hear, hear.

Mr. Spens: I entirely accept what the right hon. Gentleman says, but that is not tax avoidance, which the Chancellor of the Exchequer wants to hit. If the Chancellor of the Exchequer wants to hit every single instance in which a person makes a family allowance or a separation allowance a little bit more because there will be a little bit less tax to pay as a result, he will cause a very great deal of suffering to a great number of people.
In stopping up gaps the Committee should not go too far. Surely if the right hon. Gentleman confines his attention to cases in which the principal and main purpose is the avoidance of Income Tax he will get everything he wants, and he should surely not try to cover cases in which avoidance of taxation is a completely subsidiary matter. I have seen it done by thousands of people, where there is the greatest difficulty in raising a little extra, £10, £15 or£20, and it makes all the difference in the world to the recipient. These are exactly not the cases in which we want to stop it being done. They are not cases in which big sums are involved; these are small sums belonging to small people. I suggest that it is sufficient that tax avoidance cases should be those in which the main purpose is to avoid taxation.

7.30 p.m.

Mr. Bellenger: The hon. and learned Gentleman has not given too good an illustration, and I sympathise with the point put by my right hon. Friend. This case is on a level with that of those people who wanted to do the best they possibly could for their children's education, and, who, until the law was altered, in providing a sum for that purpose, were able, by the manner in which the deed was drawn, to escape taxation themselves. This may not be, strictly speaking, tax evasion, but it means that the divorced gentleman is prepared to give his wife another £50 a year, not at his own expense, but at the expense of the general body of taxpayers. That argument will not bear investigation. If the lady needs £400 a year, let the husband find it for her, but do not let him come to the general body of taxpayers and say, "I am going to provide her with £350, and you can provide her with £50." As one of the general body of taxpayers who is happily married and not divorced, I object to providing £50 for that kind of purpose.

7.32 p.m.

The Solicitor-General: I think that one of the minor comedies of this discussion is that, when my hon. and learned Friend looks at the OFFICIAL REPORT to-morrow morning, he will probably find that he has used the words "mainly" and "principal" as interchangeable. The position that we are trying to meet is that the words
effected mainly for some purpose other than the purpose of avoiding liability to taxation
have broken down. I will tell the Committee in a moment of a case which these words have failed to meet. As my hon. and learned Friend would amend our test, the words would be
the purpose of avoiding liability to taxation was not the principal purpose for which the transfer or associated operations or any of them were effected.
I myself can see very little difference between these two sets of words, and, if one of them has broken down, I am perfectly confident that the other will. This is the sort of case that might be expected to get through that mesh. Again it is an actual case. A taxpayer A transferred a large amount—he was not one of the small people for whom my hon. and learned Friend was pleading—of foreign


securities to a trust company abroad on certain trusts under which the income was to be accumulated until the death of the taxpayer. There was a discretion to the trustees to pay certain portions of the income to the taxpayer or to his son. The deed gives to the taxpayer and his son power, with the consent of the trustees, to revoke the trust, or, alternatively, they can withdraw all or any part of the trust property for their own benefit. The trust income has been accumulated, and none of it has been distributed. The vigilant Revenue authorities pursued this taxpayer, and he contended, successfully, as it transpired, on appeal, that the foreign trust was born because of his fears as to the financial position of this country and the dangers of the situation on the Continent—

Mr. Lees Smith: When was this—in 1931?

The Solicitor-General: No, in 1936. He stated that he wanted to find a stable country where he could make safe provision for his family. The Special Commissioners decided that the main purpose of the transaction was occasioned by A's pessimistic view of the European situation at the time; that, arising out of that, his main intention was to make provision for his family in a safer country; and that, if there was any intention of avoidance of taxation, it was incidental to the main purpose. They therefore decided that there was no liability under Section 18 of the Act of 1936. That instance has only to be cited to the Committee for the Committee to realise that on this particular matter the hon. Member for Chesterfield (Mr. Benson) was a true prophet in 1936, when he said that the word "mainly" would be too wide. Viewing the experience with that word, I cannot recommend the Committee to adopt my hon. and learned Friend's alternative words, "the principal purpose," and for that reason we must ask the Committee to leave this very carefully and tightly drawn mesh as it stands.

Amendment negatived.

7.36 p.m.

Mr. Benson: I beg to move, in page 21, line 3o, at the end, to insert:
(5) At the end of paragraph (a) of Subsection (5) of the said Section the following words shall be added ' and after the death of the individual, his heirs, or assigns'.

This Amendment is, I think, open to less objection than was raised by the Solicitor-General to the last Amendment. It seems to me that, as the Clause is drafted, there is a very widely open door owing to the fact that the Clause only applies to the transferor. Once a transfer has been made, and somebody else inherits the transferred capital, he escapes. Therefore, I propose that the provisions of the Clause shall apply, not only to the transferor, but, after his death, to his heirs and assigns. This is a very essential limitation.
There are two objects of tax avoidance, the one the benefit that will accrue to the individual, and the other the benefit that will accrue to his children. I am not certain which of these is the more important. I do not think anyone will deny the strength of the motive of making provision for one's children, and the fact that we are continually having to legislate against avoidance of Death Duties shows quite clearly that it is a strongly acting motive. As the Clause is at present drawn, it applies to the transferor only, and he is in a position, by the transference of capital abroad under these various complicated schemes, to leave his children a tax-free income when he dies. Every transfer which is caught by the nets of the present Clause and of the 1936 Clause will, from the death of the transferor, automatically come outside the scope of the Act, and the income will become tax free.
The amount of income which has been put into these tax avoiding trusts abroad is sufficiently great to compel the Government to introduce, not one Clause, but two Clauses, in an attempt to stop the leakage. But every trust, the leakage from which these Clauses are designed to stop, will automatically, at some time or other, come outside the scope of the Act. What is the use of passing what is, in effect, merely temporary legislation? When a man dies, if he has formed a tax avoiding trust which is caught by this and previous legislation, the mere fact of his death ought not to bring the trust outside the scope of our legislation. On the part of future transferors, there is still a strong motive for the establishment of these tax avoiding trusts abroad. If a man forms one, he is not penalised; he is merely compelled to pay 'the tax that he would pay if he invested his money in this country. He can transfer


abroad without any loss. But, when he transfers abroad, he knows that, while he suffers no loss, his children, when he dies, will gain a very considerable advantage in that their income will be tax free; they will be able to receive it in the form of capital instead of what really is, income.
I have raised this point before. I think I raised it in 1936, and I certainly raised it on the Second Reading of the present Bill. The only argument that we have had so far has been that it is impossible to accept this suggestion because you cannot pry into the motives of a dead man. What is the use, we are asked, of going to heirs and saying, "We are going to tax you," when the heirs have no possible grounds on which they can defend themselves, because they cannot explain what their parent's motive was? It seems to me that that argument, which is the only one we have had, does not meet the case, because, as our tax legislation is drawn at the present time, every transfer abroad has to run the gauntlet of the provision as to motive, and, if there is a tax avoidance motive, it comes within the ambit of the Clause, while if it is a purely bona fide commercial transaction it is excluded from the ambit of the Clause. My Amendment would not in any way vary the status of any trust or transfer; it merely suggests that, where a transfer has been made for tax avoidance purposes, and where it has been established during the lifetime of the transferor that the purpose was tax avoidance, this Measure and the Act of 1936 shall apply to that transfer, and when the transferor has died, the same tax shall apply to that particular trust, so that the heirs or assigns shall not receive the benefit of the present drafting, which takes them entirely outside the Act.

7.44 p.m.

The Solicitor-General: I cannot help thinking, from one observation that fell from the hon. Member at the conclusion of his remarks, that he is under some little misunderstanding as to the present effect of the Clause. He said he could not understand why, when once it was established that the purpose was tax avoidance, the Clause should not operate. The important matter there is that he assumes that the Clause places upon the Revenue the burden of establishing that. There is, however, no such requirement.

This Clause, if passed substantially as it stands, will, in every instance where there has been a transfer of assets abroad and where the individual transferring them can be said to have enjoyment of them, throw upon the taxpayer the burden of proving a negative. That is a very different thing from what the hon. Gentleman suggested, namely, that it would be for the Revenue to establish that the purpose was tax avoidance.

Mr. Benson: If I said that, I made a mistake. What I intended to suggest was that, if a taxpayer transfers abroad and wishes to avoid the operation of this Clause and Section 18 of the Act of 1936, he has to establish a motive, but, whether or not a motive is established, after the death of the transferor the status of the transference should not be changed.

The Solicitor-General: Here we are enacting the most stringent possible provision. It is agreed that there are a large number of perfectly genuine cases. The only way these genuine cases can get out of this mesh is to appear before the Commissioners and establish a negative. They have to establish that the purpose of avoiding liability to tax was not the purpose, or one of the purposes, of the transfer. It is quite impossible for any of the person's representatives to discharge the burden that the Clause puts on them, which alone will enable them to get a perfectly genuine transaction out of the mesh which is intended to deal with sinister transactions. The one person. who knows whether one of the purposes was the avoidance of taxation is the person who has made the transfer. I agree that if you take it as pure theory it may be that some testators on their death-beds might say to themselves, "We will give more advantage to those who follow us by transferring our assets abroad; we will do so, and take all the attendant risks." Those who advise my right hon. Friend can find no evidence of any such instance. There is no evidence that any such provision is necessary. In our view, this Would render the motive test unworkable, and might bring about a very strong and reasonable demand that the motive test should be modified in some way. Having provided a stringent motive test, we cannot recommend the Committee to make it still more stringent in this way.

Mr. Benson: I am not sure that I have made myself quite clear. Take this case.


You have a transference abroad in which the transferor has completely failed to establish before the Commissioners that the transfer was made for bona-fide commercial purposes. It has been decided that the income shall attract tax. When the transferor dies, although the motive of tax avoidance has been definitely established—or at any rate, has been accepted—and tax has been attracted as a result, the whole of the transferred assets come outside the scope of the Act. That was definitely laid down in 1936 by the Financial Secretary to the Treasury; and, when pressed, he repeated that this legislation applies only to the transferors. But where you have a case of a transference having been made and the transferor having failed to satisfy the Commissioners as to motive, there is obviously no injustice in taxing the heirs when the transferor dies. When you get a case of a transference where the transferor has succeeded in establishing a bona-fide transaction, that is outside the scope of the Act already and the heirs have not to re-establish that it was a bona-fide transaction.

The Solicitor-General: I confess I have overlooked that possibility. What the hon. Member is visualising is a case where there has been a decision that the transfer has been made for the purpose of avoiding tax. But he will recognise that it is much more limited than the position with which his Amendment would deal. His Amendment will deal with any case where there has been a transfer of assets abroad, and you have to consider the position of the heirs and assigns to those assets. What the hon. Member is concerned with is only, in fact, a case where a decision has been given that a transaction is not bona-fide, and it is said, "Why should the heirs benefit?" I will have that looked into before the Report stage, but I think I can tell the hon. Gentleman what the position is now. What we are dealing with here is the income of an individual. You are arranging for a levy on the income of a person during his life. When he dies, that liability to Income Tax dies with him, subject to the provision which enables his executors to be charged in respect of the last year of his liability to tax. So far as I know, the hon. Member's proposition would be introducing an entirely novel and difficult provision into the Income Tax Acts. It would be a very diffi-

cult proposition to justify. It is a proposition which is based upon the conception of income as being a continuous thing, apart from the lifetime of the person who is paying taxation. The whole of our system of taxation depends on ascertaining what the income of the individual is, and what is his capacity to bear taxation. All that would be departed from under the proposition of the hon. Gentleman. For that reason, I do not hold out any hope of dealing with the very special limited case which he put in his concluding remarks; but I will look into the matter.

Mr. Lees-Smith: Are we to understand that this is the dilemma? There is a certain income abroad which has been taxed on the ground that it was not bona-fide. The taxpayer dies. Are we to understand that after he dies that income still goes abroad, but will in future be free from taxation?

The Solicitor-General: A testator desiring to avoid taxation transfers assets abroad—say, to a company. One form that the transaction takes is that he then sells assets to the company, and gets paid in the form of a lump sum. He gets paid from the foreign company capital sums which are really derived from the income which has been transferred abroad. That is one of the assets we are now bringing into charge. We say that, as regards that individual, this has never ceased to be his income; therefore, the taxation shall fall on him in respect of the assets that he transferred abroad. But upon his death, although he has transferred the assets with that motive of fraud, the vice of the transaction will die with him. The assets will remain abroad, and they will then become the property of somebody else, perhaps his son. It does not follow that his son does not pay taxation on those assets. He might be paying as a resident abroad receiving income here, only to the extent of the income brought in. It is definitely not certain that he will avoid the tax altogether. As I said, I will look into this matter, to see if there are any possibilities of dealing with the subject; but I do not contemplate that there are any.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 12o; Noes, 199.

Division No. 250.]
AYES.
[8.0 p. m.


Adams, D. (Consetl)
Guest, Dr. L. H. (Islington, N.)
Oliver, G. H.


Adams, D. M. (Poplar, S.)
Hall, J. H. (Whitechapal)
Paling, W.


Alexander, Rt. Hon. A. V. (H'Isbr.)
Hardie, Agnes
Parker, J.


Attlee, Rt. Hon. C. R.
Harris, Sir P. A.
Parkinson, J. A.


Bonfield, J. W.
Harvey, T. E. (Eng. Univ's.)
Pearson, A.


Barnes, A. J.
Hayday, A.
Pethick-Lawrence, Rt. Hon. F. W.


Batey, J.
Henderson, A. (Kingswinford)
Ridley, G.


Bellenger, F. J.
Henderson, T. (Tradeston)
Ritson, J.


Bonn, Rt. Hon. W. W.
Hills, A. (Pontefract)
Roberts, Rt. Hon. F. O. (W. Brom.)


Benson, G.
Hopkin, D.
Robinson, W. A. (St. Helens)


Bevan, A.
Jenkins, A. (Pontypool)
Salter, Dr. A. (Bermondsey)


Broad, F. A.
Jenkins, Sir W. (Neath)
Sexton, T. M.


Bromfield, W.
John, W.
Simpson, F. B.


Brown, C. (Mansfield)
Johnston, Rt. Hon. T.
Sinclair, Rt. Hon. Sir A. (C'thn's)


Burke, W. A.
Jones, A. C. (Shipley)
Smith, E. (Stoke)


Chater, D.
Jones, Sir H. Haydn (Merioneth)
Smith, Rt. Hon. H. B. Lees- (K'ly)


Close, W. S.
Kelly, W. T.
Smith, T. (Normanton)


Clynes, Rt. Hon. J. R.
Kennedy, Rt. Hon. T.
Sorensen, R. W.


Cooks, F. S.
Kirby, B. V.
Stewart, W. J. (H'ght'n-le-Sp'ng)


Collindridge, F.
Kirkwood, D.
Strauss, G. R. (Lambeth, N.)


Cove, W. G.
Lansbury, Rt. Hon. G.
Summerskill, Dr. Edith


Dtggar, G.
Lawson, J. J.
Taylor, R. J. (Morpeth)


Dalton, H.
Leach, W.
Thorne, W.


Davies, R. J. (Westhoughton)
Leonard, W.
Thurtle, E.


Day, H.
Leslie, J. R.
Tinker, J. J.


Ede, J. C.
Logan, D. G.
Tomlinson, G.


Edwards, Sir C. (Bedwellty)
Lunn, W.
Viant, S. P.


Elliston, Cant. G. S.
Macdonald, G. (Ince)
Walkden, A. G.


Evans, D. O. (Cardigan)
McEntee, V. La T.
Walker, J.


Fletcher, Lt.-Comdr. R. T. H.
McGhee, H. G.
Watkins, F. C.


Frankel, D.
Marshall, F.
Watson, W. McL.


Gardner, B. W.
Mothers, G.
Welsh, J. C.


Gerro Jones, G. M.
Maxton, J.
Westwood, J.


George, Megan Lloyd (Anglesey)
Messer, F.
Whiteley, W. (Blaydon)


Gibson, R. (Greenock)
Milner, Major J.
Williams, T. (Don Valley)


Graham, D. M. (Hamilton)
Montague, F.
Wilson, C. H. (Altonliffe)


Green, W. H. (Deptford)
Morrison, Rt. Hon. H. (Hackney, S.)
Windsor, W. (Hull, C.)


Greenwood, Rt. Hon. A.
Morrison, R. C. (Tottenham, N.)
Young, Sir R. (Newton)


Griffith, F. Kingsley (M'ddl'sbro, W.)
Muff, G.



Griffiths, G. A. (Hemsworth)
Nathan, Colonel H. L.
TELLERS FOR THE AYES.—


Groves, T. E.
Naylor, T. E.
Mr. Charleton and Mr. Adamson.




NOES.


Acland-Troyte, Lt.-Col. G. J.
Conant, Captain R. J. E.
Guest, Lieut.-Colonel H. (Drake)


Adams, S. V. T. (Leeds, W.)
Cook, Sir T. R. A. M. (Norfolk, N.)
Gunston, Capt. Sir D. W.


Agnew, Lieut.-Comdr. P. G.
Cooke, J. D. (Hammersmith, S.)
Hambro, A. V.


Albery, Sir Irving
Cooper, Rt. Hn. A. Duff (W'sfr S.G.gs)
Hannah, I. C.


Allen, Col. J. Sandeman (B'knhead)
Cooper, Rt. Hn. T. M. (E'nburgh, W.)
Hannon, Sir P. J. H.


Allen, Lt.-Col. Sir W. J. (Armagh)
Crooke, Sir J. S.
Haslam, Henry (Hornoastle)


Asks, Sir R. W.
Crookshank, Capt. H. F. C.
Haslam, Sir J. (Bolton)


Assheton, R.
Groom-Johnson, R. P.
Hangers, Captain F. F. A.


Atholl, Duchess of
Crossley, A. C.
Hely-Hutchinson, M. R.


Balfour, G. (Hampstead)
Crowder, J. F. E.
Hepburn, P. G. T. Buchan


Balfour, Capt. H. H. (Isle of Thanet)
Culverwell, C. T.
Herbert, A. P. (Oxford U.)


Barclay-Harvey, Sir C. M.
Davies, C. (Montgomery)
Herbert, Major J. A. (Monmouth)


Beamish, Rear-Admiral T. P. H.
Davison, Sir W. H.
Holmes, J. S.


Beauchamp, Sir B. C.
Dawson, Sir P.
Hope, Captain Hon. A. O. J


Belt, Sir A. L.
Denman, Hon. R. D.
Horabrugh, Florence


Bernays, R. H.
Denville, Alfred
Hudson, Capt. A. U. M. (Hack., N.)


Birohall, Sir J. D.
Despencer-Robertson, Major J. A. F.
Hudson, Rt. Hon. R. S. (Southport)


Blair, Sir R.
Boland, G. F.
Hulbert, N. J.


Bossom, A. C.
Donner, P. W.
Hunloke, H. P.


Boulton, W. W.
Dorman-Smith, Major Sir R. H.
Hunter, T.


Braithwaite, Major A. N.
Duckworth, Arthur (Shrewsbury)
Inskip, Rt. Hon. Sir T. W. H.


Brass, Sir W.
Duckworth, W. R. (Moss Side)
Jones, Sir G. W. H. (S'k N'w'gt'n)


Briscoe, Capt. R. G.
Duncan, J. A. L.
Jones, L. (Swansea W.)


Brown, Rt. Hon. E. (Leith)
Edge, Sir W.
Kerr, Colonel C. I. (Montrose)


Browne, A. C. (Belfast, W.)
Edmondson, Major Sir J.
Kerr, H. W. (Oldham)


Bull, B. B.
Ellis, Sir G.
Kerr, J. Graham (Scottish Unlink)


Bullock, Capt. M.
Elliston, Capt. G. S.
Lamb, Sir J. Q.


Burgin, Rt. Hon. E. L.
Erskine-Hill, A. G.
Latham, Sir P.


Butcher, H. W.
Findlay, Sir E.
Law, Sir A. J. (High Peak)


Campbell, Sir E. T.
Fox, Sir G. W. G.
Leech, Sir J. W.


Cartland, J. R. H.
Fremantle, Sir F. E.
Levy, T.


Cary, R. A.
Furness, S. N.
Little, Sir E. Graham


Caralet, Thelma (Islington, E.)
Fyfe, D. P. M.
Llewellin, Colonel J. J.


Cazalet, Capt. V. A. (Chippenham)
Glyn, Major Sir R. G. C.
MacAndrew, Colonel Sir C. G.


Chamberlain, Rt. Hn. N. (Edgb't'n)
Gower, Sir R. V.
MoCorquodale, M. S.


Clarry, Sir Reginald
Grant-Ferris, R.
MacDonald, Rt. Hon. M. (Ross)


Cobb, Captain E. C. (Preston)
Greene, W. P. C. (Worcester)
MoEwen, Capt. J. H. F.


Colfox, Major W. P.
Gretton, Col. Rt. Hon. J.
McKie, J. H.


Colville, Rt. Hon. John
Grimeton, R. V.
Macmillan, H. (Stockton-on-Tees)







Maitland, A.
Reid, Sir D. D. (Down)
Strauss, E. A. (Southwark, N.)


Makins, Brigadier-General Sir Ernest
Reid, W. Allan (Derby)
Strauss, H. G. (Norwich)


Manningham-Buller, Sir M.
Remer, J. R.
Stuart, Hon. J. (Moray and Nairn)


Margesson, Capt. Rt. Hon. H. D. R.
Robinson, J. R. (Blackpool)
Tacker, Sir R. I.


Markham, S. F.
Ropner, Colonel L.
Taylor, C. S. (Eastbourne)


Maxwell, Hon. S. A.
Ross, Major Sir R. D. (Londonderry)
Thomson, Sir J. D. W.


Mayhew, Lt.-Col. J.
Ross Taylor, W. (Woodbridge)
Thorneycroft, G. E. P.


Moore, Lieut.-Colonel Sir T. C. R.
Rowlands, G.
Titohfield, Marquess of


Morgan, R. H.
Royds, Admiral Sir P. M. R.
Tree, A. R. L. F.


Morrison, G. A. (Scottish Univ's.)
Ruggles-Brise, Colonel Sir E. A.
Walker-Smith, Sir J.


Muirhead, Lt.-Col. A. J.
Russell, R. J. (Eddisbury)
Wallace, Capt. Rt. Hon. Euan


Munro, P.
Russell, S. H. M. (Darwen)
Ward, Lieut.-Col. Sir A. L. (Hull)


Nall, Sir J.
Salmon, Sir I.
Ward, Irene M. B. (Wallsend)


Neven-Spence, Major B. H. H.
Salt, E. W.
Waterhouse, Captain C.


Nicolson, Hon. H. G.
Samuel, M. R. A.
Wedderburn, H. J. S.


O'Connor, Sir Terence J.
Sanderson, Sir F. B.
Wells, Sir Sydney


Palmer, G. E. H.
Shakespeare, G. H
Whiteley, Major J. P. (Buokingham)


Perkins, W. R. D.
Shaw, Captain W. T. (Forfar)
Wickham, Lt.-Col. E. T. R.


Pickthorn, K. W. M.
Shute, Colonel Sir J. J.
Williams, H. G. (Croydon, S.)


Pilkington, R.
Simmonds, O. E.
Willoughby de Eresby, Lord


Ponsonby, Col. C. E.
Simon, Rt. Hon. Sir J. A
Wilson, Lt.-Col. Sir A. T. (Hitohin)


Procter, Major H. A.
Somervell, Rt. Hon. Sir Donald
Withers, Sir J. J.


Raikes, H. V. A. M.
Somerville, A. A. (Windsor)
Womersley, Sir W. J.


Ramsay, Captain A. H. M.
Southby, Commander Sir A. R. J.
Wood, Hon. C. I. C.


Ramsbotham, H.
Spans, W. P.
Wragg, H.


Ramsden, Sir E.
Stanley, Rt. Hon. Lord (Fylde)



Rathbone, J. R. (Bodmin)
Stanley, Rt. Hon. Oliver (W'm'I'd)
TELLERS FOR THE NOES.


Reed, Sir H. S.(Aylesbury)
Stewart, J. Henderson (Fife, E.)
Captain Dugdate and Major




Harvie watt.

Clause, as amended, ordered to stand part of the Bill.

CLAUSE 24.—(Provisions as to limited interests in residue.)

8.8 p.m.

Mr. Hely-Hutchinson: I beg to move, in page 22, line 43, at the end, to insert:
Provided that any sum paid on account of legacy duty shall not he deemed for the purposes of this Sub-section to be a sum paid or payable in respect of a limited interest.
Under the existing arrangement the entire tax falls on the estate and the purpose of the Amendment is to secure that, now that it is proposed that the part of the income which applies to limited interests shall be regarded as income of the person who holds that limited interest for taxation purposes, the person who receives only income out of the estate and not capital shall not have to pay Surtax on account of the legacy duty he has to pay.

8.9 p.m.

The Solicitor-General: The object of my hon. Friend in moving the Amendment is to ensure that some sum paid by the personal representatives as legacy duty in respect of the interest of a life tenant shall not, for Income Tax purposes, be deemed to be the income of the life tenant. It may come somewhat as a shock to a great many members of the Committee who have not studied this subject with complete care to know that, when you are ascertaining the life interest of a person in an estate for the purposes of Income Tax, under judicial

authority, you add back to the income of any year the legacy duty which has been paid by the executors before the interest has been paid. The layman might be under the impression that the legacy duty which was so deducted by the executors was no part of the income of the life tenant, but that is contrary to judicial decision. The present wording of this Clause was not adopted for the purpose of sweeping into the life tenant's income sums of money which have been paid as legacy duty in the course of the administration by the executors, but, on a strict construction of the words which have been used, it is the actual fact that such payments are treated as the income of the life tenant.
There is a good deal to be said for the view which my hon. Friend the Member for Hastings (Mr. Hely-Hutchinson) has put forward in support of the Amendment which he has moved, but the Government cannot accept it as it stands, for this reason. The effect of the Amendment would be to reduce the amount of income, in the case of Surtax payers, upon which Surtax was chargeable, but it would have exactly the opposite effect in the case of Income Tax of small taxpayers, who are entitled to reclaim tax that had been deducted before the income was handed on to them. In such cases they have been allowed to include a computation of the legacy duty, in ascertaining the amount of Income Tax they could recover. If the Amendment were adopted as it stood, among other effects it would have would be to reduce the amount of


tax that the small Income Tax payer, who was a life tenant, was able to recover. There are other objections to the Amendment as it stands, but the Government propose between now and the Report stage to put down an Amendment which will preserve the position of the small Income Tax payer or will not damnify the small taxpayer and will remove the Surtax payer from the somewhat anomalous position in which, under the wording of the Clause, he was likely to be. I hope that with that assurance my hon. Friend will be able to withdraw the Amendment.

8.13 p.m.

Mr. Benson: I am rather surprised to hear that the Government propose to accept the principle if not the wording of this Amendment, the object of which is really to set what is unquestionably a capital charge against income. In the case of a limited interest legacy duty is paid in four instalments, and from the fact that it is spread over a period of four years, it would appear to be an income charge. The spreading over of the payment in four instalments is really a concession to the taxpayer, who may have inherited merely income and no capital, to enable him to pay legacy duty out of what is inherited. The whole basis of the assessment of legacy duty is based upon the idea that, if you inherit £100 per annum, such sum has a capital value, and it has a varying capital value according to the age of the person when he inherits it. The Board of Inland Revenue or the Treasury assess the capital value of what is inherited; they impose a capital tax upon that value, but in order to ease the burden of the taxpayer they take it in four instalments. Under what general principle of Income Tax can a capital charge be set against income for the purpose of reduction of tax? The Solicitor-General on a recent Amendment corrected me on the fundamental basis of Income Tax law and philosophy. Here, he is proposing to make an irretrievable breach in that philosophy.

Mr. Hely-Hutchinson: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8.16 p.m.

The Solicitor-General: I beg to move, in page 23, line 26, at the end, to insert, "less the tax so borne."
In Sub-section (5) we are dealing with a method of arriving at the tax which is to be levied upon the income of an estate where the estate is, within the meaning of the Definition Clause, a foreign estate. The words "foreign estate" in this Bill are used as a term of art. It does not mean that all the property is foreign. It may mean that some is foreign and that some consists of British securities. Some of the income may not have borne tax and some may have borne tax. Under Sub-section (4, b) a payment from a foreign estate is deemed to be paid as income of the amount deemed to have been so paid. In the case where you have one part of the income already taxed and one part not taxed, it is necessary to arrive at some formula according to which you can levy tax which will result in the total income bearing the appropriate rate of British Income Tax.
The matter is an extremely complicated and difficult one as to how the formula works. The words that have been put into the Bill include the word "proportion." Where the Income Tax falls to be reduced it is provided that it shall
be reduced by an amount bearing the same proportion thereto as the amount of the said income which has borne United Kingdom Income Tax bears to the amount of the said aggregate income.
You are there putting into comparison two things which are not alike, an amount that has borne United Kingdom Income Tax and the amount of the aggregate income part of which has borne tax and part of which has not. The only way in which you can get your figure to work out accurately is by deducting tax from both. Therefore, we propose to add the words, "less the tax so borne," in respect of each of the elements which go to make up the sum. If the Committee will accept that very inadequate explanation of a formula which really would puzzle a senior wrangler, coupled with the assurance that I have satisfied myself that the sum if worked out according to the formula would result, if we put in these words, in an accurate tax being levied, I hope they will accept the Amendment.

Amendment agreed to.

Further Amendment made: In page 23, line 27, at the end, insert "less the tax so borne."

Clause, as amended, ordered to stand part of the Bill.

CLAUSE 25.—(Provisions as to absolute interests in residue.)

The Solicitor-General: I beg to move, in page 25, line 19, to leave out Subsection (6), and to add:
(6) Where a person has been charged to standard tax for any year by virtue of this section in respect of an amount deemed to have been paid to him as income in respect of an interest in a foreign estate and any part of the aggregate income of that estate for that year has borne United Kingdom Income Tax by deduction or otherwise, the tax so charged on him shall, on proof of the facts to the satisfaction of the general or special commissioners, be reduced by an amount bearing the same proportion thereto as the amount of the said income which has borne United Kingdom Income Tax bears to the amount of the said aggregate income.
Exactly the same point in relation to income is being dealt with under Clause 25, which relates to the income of a residuary legatee, as has been raised by the formula under the preceding Clause. In this instance it has to be framed in a different way, but it comes to the same thing.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clauses 26 to 28 ordered to stand part of the Bill.

CLAUSE 29.—(Interpretation of Part III.)

Mr. Hely-Hutchinson: I beg to move, in page 32, line 10, at the end, to insert:
or in relation to income in respect of which relief has been allowed under the provisions of Section twenty-seven of the Finance Act, 1920, Income Tax at the standard rate as reduced by the rate at which such relief was allowed.
This Amendment concerns the definition affecting Part III, and its purpose is to include in Sub-section (10) all the benefits of Dominion relief. It is not necessary to make a fuller explanation.

8.23 p.m.

The Solicitor-General: I gather that what my hon. Friend wishes to do by this Amendment is to ensure that the definition of standard tax appearing on page 32, line 10, means United Kingdom Income Tax at standard rate. In a very confusing and difficult Section of the Finance Act, 1920, Section 27, there is a provision whereby in the case of a person who is taxed in two parts of the

British Dominions, if he establishes that his income has borne tax in both parts of the British Dominions, he is entitled to relief against his United Kingdom Income Tax. My hon. Friend is afraid that no account will be taken of that Section, and he desires to secure by specific enactment that that relief shall be taken into account for the purpose of Part III. The words that he uses would not, however, be satisfactory. His Amendment would mean copious amendment throughout the Section. I can give him an assurance that in the provisions of Part III as they stand the term "standard tax" will be construed as being either the full standard rate or, where the facts so require, a rate appropriately reduced by reference to the Dominions taxation.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clause 30 ordered to stand part of the Bill.

Orders of the Day — (CLAUSE 31.—(Commencement of Part III.)

8.25 p.m.

Mr. Hely-Hutchinson: I beg to move in page 33, to leave out lines 18 to 34, and to insert:
for the purpose of assessment to Income Tax and reliefs for the year 1938–39 and subsequent years and shall apply in relation to the estate of a deceased person whether he died before or after the commencement of the year 1938–39.
In our reading the Clause as at present drafted appears to treat limited income in an estate in a different way from which absolute interest is treated. As far as we can make out, limited interest will have to pay one more year's taxation than absolute interest.

8.26 p.m.

The Solicitor-General: The hon. Member is perfectly right in his construction of the Clause. We do propose to treat limited interest and absolute interest differently. The provisions of this part of the Bill apply generally to the year 1938–39 and subsequent years, but payments in respect of limited interest and life interest are made chargeable to Surtax from the year 1937–38. The effect of the Amendment would be to put payments to life tenants on the same footing as payments to a residuary legatee. The reason why the Government felt that this


ought not to be the case is this. Speaking without any intention of being disrespectful to the Court of Appeal, it is true that although the Court of Appeal made clear what the law was in the Corbett case, most people had assumed that the law was other than it was. Most laymen had assumed that when a person was enjoying a life interest in an estate, when the will gave a person the income during life, that that was all that could be said to pass to that person, and that when in pursuance of the terms of the will the executors proceeded year after year to hand out to that person sums of money which were exactly equivalent to the life interest reserved under the will, most people assumed that that represented the income of the life tenant. That situation was never challenged until the Corbett case, and what was then settled was that until the residue is ascertained there cannot be any income out of the residue, so that the sums of money paid to the person between death and the completion of administration, do not represent income, but represent something in the nature of compensatory payments made by executors for the loss of income that that person has suffered prior to the completion of the administration of the estate.
Life tenants have been, in fact, levied with tax as though these sums of money were income, and until the Corbett case that situation has never been challenged. In ordinary, plain horse sense a person who is only entitled to income and receives in fact sums of money annually is in a layman's view receiving nothing but income. We felt that, having always been in that position and always subject to such a tax, no one could complain of any grievance if that provision were continued and the Clause made retrospective in their case. We felt that people who had always been considered in ordinary language to be in receipt of income should not enjoy exemption for another year. But an entirely different situation arises as regards the residuary legatee. The provisions of Clause 25, which are entirely new law, deal with the case of a person who has an absolute interest in residue, and I want to put a complicated point as simply as I can.
In the case of a person who has an absolute interest in residue the law has been that when an estate was administered both income and capital were handed out

to the person in one mixed sum, a mixed sum from which you could not disentangle income and capital, and neither during the administration period nor in the final payment was Surtax levied upon a residuary legatee. As a matter of entirely new law we are now treating a residuary legatee as being in receipt of income as from the date of death until the final ascertainment, and the individual now comes into the mesh of the Surtax as though he had been in receipt of income all those years up to the ascertainment of the residue. In these circumstances we felt that there is a distinct difference between the case of the residuary legatee and the life tenant, and we mark that distinction by making the legislation in respect of the life tenant retrospective for one year and the provisions in regard to the residuary legatee not retrospective.

Mr. Hely-Hutchinson: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8.34 P.m.

The Solicitor-General: I beg to move, in page 33, line 19, after "Act," to insert:
or by virtue of Sub-section (3) of the fourth section in this Part of this Act.
This Amendment corrects an oversight which we noticed in the drafting. Clauses 24 and 25 deal with the two main classes of income, but there is another category of income which will be found in Clause 27, and that is income which arises under the exercise of a discretion. That is not at the present moment covered, and we include it now in the categories in respect of which the Bill will be retrospective.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Orders of the Day — CLAUSE 32.—(Income arising under certain settlements to be treated as income of settlor.)

8.35 P.m.

Captain sir William Brass: I beg to move, in page 34, line 32, at the end, to insert:
Provided also that if the settlor shall within three months of the date on which this Act comes into force by deed release any existing power of revocation or declare that the settlement shall be irrevocable from the date on which the settlement was made, it


shall be deemed to have been irrevocable from the date on which the settlement was made.
I move this Amendment because I fear that if this proviso is not included in the Clause, certain injustices will result. In the course of his Budget speech, my right hon. Friend the Chancellor of the Exchequer said:
I propose, therefore, that in the case of all trusts and settlements the income arising should be treated as the income of the settlor for Income Tax purposes—and this includes Surtax—if the terms of the settlement provide any power of revocation whatever by the exercise of which the settler might become entitled to the beneficial enjoyment of the income.
In order to illustrate this point, I wish to cite to my right hon. Friend four settlements that have been made by a friend of mine. They were made in January, 1937, before the Chancellor's speech; they were made on relatives without any obligation whatever; they were for seven years; and they contained a revocation clause, which was allowed under Section 20 of the Finance Act, 1922. The revocation clause was included in order to safeguard the settlor in the event of certain things happening—for instance, that the beneficiary got into the bankruptcy court, was unworthy, or got into the hands of moneylenders. In those events, with the consent of another, the settlor could revoke the settlement. That was in accordance with the law as it existed then under the 1922 Act. The situation as my friend saw it was that he was anxious to try to help certain relatives by making settlements upon them in order to assist their income. He found that if he did that he was able, first of all, to deduct Surtax because the income was not his income, but the income of the recipients; and he also found that if he did that, as happens in the case of many hospital settlements, the recipient was able to claim back the Income Tax which had been paid by the settlor. That was how he worked the whole matter out, and he gave the maximum amount that he could afford to those relatives in order to help them as much as he could. That was in accordance with the law as it existed in January, 1937.
The Chancellor then said in his Budget speech:
These two proposals will apply to all settlements, existing and future, and as regards existing settlements they will take effect for Surtax purposes for the year

1937–38, thus having the retrospective effect of which I gave due warning last year."—[OFFICIAL REPORT, 26th April, 1938; col. 53, Vol. 335.]
I want to protest against the idea that a speech by the Chancellor last year can have force of law this year. I think that is completely wrong in principle. All my life I have been told that ignorance of the law, even of by-laws, is no excuse, but now I am being told that ignorance of the Chancellor's speech is no excuse. I think that is going rather too far. I think my right hon. Friend probably borrowed the idea from some of the road-menders, for if one goes along a road on which repairs are taking place, one sees a large notice warning one. I do not like the idea of restrospective legislation, I do not consider it is a good thing, and in this instance, I think it is a thoroughly bad thing. I would like to quote what was said on this point by an eminent lawyer in 1922, at the time the Debate was taking place on the Clause in the Finance Bill, 1922, which permitted the revocation clause. He said:
It is a dangerous thing for the Government to introduce into a taxing Act, whether or not there is a precedent for it, proposals which are retrospective in their action. These settlements were perfectly legal, and great judges have said over and over again that the subject is entitled to avoid—not to evade—taxation if he can. People legally parted with income, and they cannot recover it.
Later on, he said:
It is an attempt for the law to be retrospective in its effect. I take great objection to that…The result would be that none of us would know whether a perfectly legal arrangement that we are making to-day would not five or ten years from now be made the subject of taxation.…I say the man who made a settlement before the Act was passed made it. believing. it would be free from the incidence of taxation, while the man who makes one after the passing of the Bill will do it with his eyes open, and will know he is parting with income notwithstanding that he will still have to pay taxation on it."—[OFFICIAL REPORT, 20th June, 1922; cols. 2206–1208, Vol. 155.]
That was said by my right hon. Friend who is now Minister for the Co-ordination of Defence, and I ask the Chancellor of the Exchequer to discuss this question of retrospective legislation with his right hon. Friend in the Cabinet. I want now to give a picture of what is the position of my friend at the present time. He made the four settlements, and he now finds himself in the position where he is being charged Surtax retrospectively


because the Chancellor made a speech about it last year. I think that is wrong. If the Chancellor wished to make a Clause that would have effect in future, that would be all right, but it is wrong for such a Clause to be retrospective. The proposal I am making is a very simple one. I understand that the real trouble in this matter arises out of the revocation clause. I understand that in certain instances—not, I may mention, in the instance of my friend—this revocation clause is abused. Consequently, I suggest that there should be the proviso which I have moved, and which is to the effect that if a settlor decides to make a settlement which has the revocation clause in it irrevocable within three months of the passing of the Bill, then that settlement shall be deemed to have been irrevocable from the start, and consequently he shall not have to pay the Surtax on it which he would have to pay if Clause 32 were passed in its present form. I consider that to be a reasonable suggestion. The person who wanted to keep the settlement open for tax evasion purposes would not be able to do so under the proviso. If he wanted to keep it open, he would have to pay the tax, but if he did not want to keep it open, and was willing to make it irrevocable, he would not have to pay tax retrospectively for 1937–38. I recommend this proviso to my right hon. Friend and ask him to consider it. I am not wedded to the words on the Paper and I am no lawyer and I do not profess to understand drafting, but the principle is clear and I ask my right hon. Friend seriously to consider it.

8.45 p.m.

Mr. Clement Davies: May I ask your guidance, Sir Dennis Herbert, with regard to the Amendment on the Order Paper—in page 37, line 1, to insert a new paragraph (a)? That Amendment covers the whole of this Clause and as I understand it the Amendment moved by my hon. and gallant Friend the Member for Clitheroe (Sir W. Brass) covers only the first part of the Clause. I put down my Amendment at what I thought to be the best place. It covers Sub-sections (1) (2) and (3) of the Clause inasmuch as Subsection (7) provides that "the foregoing provisions" which include Sub-sections (1), (2) and (3)—
shall apply for the purposes of assessment to Income Tax for the year 1937–38 and subsequent years and shall apply in relation to

any settlement wherever made and whether made before or after the passing of this Act.
Then follow certain provisos to which my Amendment proposes an addition. May we discuss the point of principle on this Amendment?

The Chairman: I had already considered that point to a certain extent and without committing myself on the question of what Amendments I shall call later, and whether I shall call the Amendment in the name of the hon. and learned Member or not, I think it would be convenient if all the questions which are covered by his Amendment were discussed on this Amendment, provided that the Committee agree.

8.48 p.m.

Sir Malcolm Barclay-Harvey: I urge upon the Chancellor of the Exchequer the desirability of giving favourable consideration to this proviso. It is not unreasonable to ask that when we are taking retrospective action on one side we should give people who have made these settlements an opportunity of bringing them into line with the law, even though their action will also be retrospective. I am anxious not to put into the Bill anything which would assist people to evade taxes which they properly ought to pay. If this proviso had any effect of that sort, I should not put my name to it, but I think my hon. and gallant Friend the Member for Clitheroe (Sir W. Brass) has made it plain that the object of the proviso is to allow people who have made bona fide settlements believing them to be legal, an opportunity of ensuring that those settlements shall still be legal, by withdrawing any revocation Clauses which they may contain. Personally, I dislike all retrospective legislation. I think it thoroughly unsound in principle. It opens doors which ought to be kept firmly locked. There is no excuse for saying that because we to-day, regard something as wrong it should necessarily have been regarded as wrong 10 years ago. I submit that this Amendment is eminently reasonable. It will not deprive the Chancellor of the Exchequer of any taxation which he ought to get, and in fairness to those who have already made settlements I ask my right hon. Friend to give it his sympathetic consideration.

8.51 p.m.

Mr. Denman: I expect the Chancellor of the Exchequer will have little difficulty


in defending the case for retrospective legislation in some circumstances, and I am not prepared to go as far as the last speaker in a general condemnation of that practice. It has been a common feeling for the last few years that drastic action was needed to prevent tax avoidance and evasion of the more disreputable kind, and it is only if the threat of retrospective action is clearly held out and acted upon from time to time that you can put an end to this pernicious practice—pernicious, not merely because the wicked man "gets away with it" but also because he imposes upon the shoulders of others a burden which he himself ought to carry. Therefore there is a case for retrospective legislation carefully selected and carefully controlled.
At the same time, I make a plea to the Chancellor to look again at these proposals. I think he will agree that he is including settlements which are entirely innocent and even beneficial and which I am sure he would like to encourage. At least if he does not want to encourage them in the future, he will realise that they have been so beneficial up to now as to make retrospective action against them undesirable. I give the case of a wealthy man who was able to settle over £1,000 a year for a period of seven years on a certain number of charities. He did so by means of a revocable settlement not because of any desire to evade taxation but simply because his income was subject to fluctuations and as a prudent man he foresaw that it might not be possible for him to arrange his support of these charities for a considerable period ahead. He therefore made this settlement revocable and there is nothing wrong with that.

Sir J. Simon: What was the period?

Mr. Denman: It was for seven years and was revocable with the assent of a third party. That was to comply with the law so as to enable him to make a settlement of this substantial amount on certain charities. He is prepared to readjust this settlement now that the law has been changed. But to ask him to pay Surtax on sums which have already been paid out under the settlement, seems to go too far. I think that probably he has a long enough life before him to enable him to recoup himself at the expense of the charities and to recover that

Surtax by lessening the amount which the charities receive but surely the Chancellor would not think that a desirable result. He, I am sure, would not desire to mulct these charities in sums which they are expecting because he is making this Clause retrospective in relation to certain settlements. I ask him to look into the subject again and to realise that there are hard cases which might reasonably be excluded from the ambit of the Clause.

8.55 p.m.

Mr. C. Davies: I do not want to discuss this matter on the question of hard cases. We are not here discussing whether it is right or wrong to tax settlements where the income has been alienated by the settlor and he has reserved the right of regaining that income in certain events. What we are discussing is whether it is right to legislate retrospectively on that matter. I understood from various statements made earlier that everyone in this Committee objected fundamentally to retrospective legislation. The hon. Member for Central Leeds (Mr. Denman) suggested that there might be, in certain circumstances and at certain times, exceptions to that rule, but I think there is universal consent to the general rule, and I am not at all sure that I did not catch the Chancellor of the Exchequer himself assenting to the general statement that legislation should not be retrospective. Certainly it should not be retrospective with regard to taxation, for the whole theory of taxation is that His Majesty requires to carry on certain services in the country, that he ask this House to vote money for that purpose, and that this House then considers what money it shall so devote, what persons shall be subjected to taxation and to what extent, and no farther.
One hears that there are certain persons who exade taxation. If you evade taxation, then you are liable to certain penalties, but if you avoid taxation, it is an entirely different matter. The hon. and gallant Member for Clitheroe (Sir W. Brass) very rightly reminded us of words which had been used by one who afterwards became Attorney-General, calling attention to the distinction that there is between evasion and avoidance. If you are within the ambit of taxation as laid down by this House, you must pay that taxation, but if you are without that ambit, you are not called upon to pay.


It does not matter what form the taxation takes, whether it is Income Tax, a tariff, or a Customs Duty, you pay according to the directions laid down by this House. People thereupon make their arrangements accordingly. The House lays down what the taxation shall be, and people should then know how they stand. A man will pay out his income accordingly, reserving, we will say, so much for taxation, and the rest is there to be disposed of. It is entirely wrong then to come at a later date and say to that man, "Ah, you were wrong. We will now tax you in respect of that which you were free to spend untaxed a year or two ago." Where is it to stop? If you go back a year or two, why not go back six years, or 12 years, or even 20 years? But that would so offend our ideas of what is fair, that no one would dream of suggesting it. It is a fundamental principle to which this House has steadily adhered—I am afraid that the principles which have guided us in the past are getting fewer and fewer every day, but it is now time that we stuck to something-and unless there is a really good reason to the contrary, this legislation ought not to be retrospective.
I said that I would not mention any hard cases, but I can mention one, because it is one of the hardest cases that I know of. It is the case of a civil servant who has attained quite a high position, but, high as his position is, his salary is still a small one. He has had a family, and, like all civil servants, he has not been able to save much out of the small income that is paid to him. Unfortunately, one member of that family, although now some 25 or 26 years of age, has the mentality of a child of 12 months or two years. That child was, as a child, kept at home, but when he grew towards manhood he had to be put away. The civil servant could not possibly put him in a public institution, so a good part of his income has had to be devoted to putting that man, who would otherwise to-day, obviously, be an asset to the family, in somewhere where he is a continuous debit to that family. A settlement was made within the law as laid down by this House, but the civil servant, very rightly, reserved the power of revoking it. It is not that he desired to evade taxation. What he wanted was to protect it, not to protect himself, in regard to the young man.

Sir J. Simon: Who would revoke it?

Mr. Davies: The trustees had the power to revoke under certain circumstances. The circumstance that he had in mind was not anything that might happen to the beneficiary, but something that might happen to him—that he himself might break down and his income become, let us say, a half or a third of what he gets to-day. Thereupon, he could not possibly pay out this sum, and the whole position would again have to be considered. That was a perfectly sound settlement, but under certain circumstances, even if he now does away with the power of revocation, he will be taxed in respect of an income which he has signed away, merely because he has reserved to himself the power of revocation. What we want is to say that next year, if the Chancellor is so minded, by all means let this be done, but let him do more than give a mere warning in a speech. It is a matter, not for the Chancellor, but for this House, and if the House lays it down that settlements with a power of revocation of income shall be taxed in the hands of the grantor, so be it—we are not discussing that—but let not this House say that what was treated as legal and right last year shall be illegal and wrong this year. For these reasons, I support as strongly as I can the appeal that has been made by the hon. and gallant Member for Clitheroe. The Amendment which stands in my name raises exactly the same principle. It is only that it deals with the three Sub-sections, whereas I think the present Amendment deals only with one Subsection. The principle is the same, and I appeal to this Committee to stick to the principle.

9.4 P.m.

Sir J. Simon: The speeches that have been made raise quite a serious question for the Committee to consider. I think the speech which most justly expressed the considerations to be weighed was the speech of the hon. Member for Central Leeds (Mr. Denman). Last year I uttered a warning. There was then on sale in Chancery Lane a form which anybody could buy, and if he had a 10s. stamp put on the top of it, it undoubtedly had the effect, if he cared to use it, of enabling him to avoid taxation by what is really a device. It is a device, or it may be a device, if, to get over the well-known position that you do not escape


a tax by reserving a right of revocation to yourself, you merely include a right of revocation to yourself and somebody else whom you can direct to do exactly what you want, whenever you choose. I do not deny that that is legal. Certainly it is legal because the law left that loophole. We may safely assume, however, that the policy of Parliament was that unless the settlement was a settlement for seven years at least and was in the ordinary sense of the term irrevocable, the person making the settlement should not escape tax. This was a device which was open to be used by persons who wished—I agree within the strict law—to keep within their own choice the putting an end of such a settlement. It was even possible for the other person to be such person as should hereafter be nominated. All the person making the settlement had to do was to go among his friends and find somebody willing to do what he said.
The only reason I issued the warning last year was that there was not time to make this provision then, because the full character of this device had not been appreciated. The effect of the warning has been greatly to limit the practice. That was one of the purposes of the warning. While that is true, it is also true, as my hon. Friend has said, that there are other cases in which undoubtedly the reason why this arrangement was made is a reason which is perfectly understandable, straightforward and honourable. It is undoubtedly the case that there have been settlements made that have had the result of saving the income of the settlor from tax, which could not be terminated simply at the settlor's own choice, but required the assent of the second person. That second person was put in for the purpose of exercising a deliberate judgment and the particular circumstances of the case were such that for perfectly good reasons it was felt right, fair and reasonable to include that provision. Undoubtedly that was all within the law.
The Committee have to make rather a difficult choice. There are cases in which the settlement may be revocable for some good reason, and there are cases in which a loophole in the law has been taken advantage of. But the general policy of Parliament was that a person should not escape the tax unless the settlement was irrevocable. It was not irrevocable if

they could bring in somebody at their will. On the other hand, there are certain cases which will be hardly hit. We must make this legislation retrospective but it is only retrospective in this sense that Super-tax which is due to be paid next January is, in fact, calculated on income for 1937–38. I have considered what ought to be done. While none of us want to let off a case which is not a thoroughly meritorious case, on the other hand, there are other cases which are cases of hardship. It might be suggested that I should draw a distinction between what was called a bona fide settlement, and other settlements, but I do not think that that is for this purpose a practical distinction. We cannot judge as between one case and another in that way, but I think that there is a pretty practical choice which my hon. and gallant Friend the Member for Clitheroe (Sir W. Brass) suggested. You would say, "If you do not use this power of revocation and if you are prepared now to turn your settlement into a really irrevocable settlement, these are such indications of your real intention to get within the spirit of the provisions of the law, that you ought not to be retrospectively hit." But if anybody in the meantime having professed to have made one of these arrangements has proceeded to use these so-called powers of revocation or has used any provision of the settlement to get money back and pay no tax on it, I do not think he ought to be shown any mercy, because his own action goes to show that it was not a genuine and straight-forward settlement.
If we adopt that course there will be a certain number of people, whose actions in the matter are not necessarily very meritorious, who will not pay in respect of the past year, but, after all, we have to choose which we will do. It is whether we will inflict a hardship on people with whom I have sympathy, such as the case mentioned by my hon. Friend the Member for Montgomery (Mr. C. Davies), or will give them the opportunity of promptly turning what was at the time they made it a lawful and effective arrangement into an arrangement which will be effective under the new law, and which is effective because it is a really irrevocable settlement. I would sooner avoid doing an injustice to a certain number of people who acted bona fide than make them suffer because there are some other people who, to use a vulgar expression, got


away with it during the past year. I do not differ from the general propositions which have been put with regard to the danger of retrospective legislation, though I think we have to look at the individual case. We have had one case to-day where the Committee agreed that we ought to act retrospectively. I do not feel very strongly on the subject of securing that Super Tax only due next year should be calculated on what would be in many cases a fair and reasonable calculation. The reason I come down on the side of making the modification is because I am conscious that there are cases where, if we persisted in the Clause as it stands, we should be mulcting retrospectively persons who acted honestly and within the law.
I cannot accept the Amendment of my hon. and gallant Friend the Member for Clitheroe, but if what I have said commends itself to the Committee, I would suggest that the Amendment be withdrawn and we will put down on Report stage a carefully drawn Amendment in its place. I have not the slightest intention of letting anybody off in the light of my warning 12 months ago unless they change any settlement which was at that time effective in relieving them from tax into such a condition of irrevocability as will meet the new law. Those people who thought they really could not afford to make a particular arrangement unless they reserved the right to stop it when they thought fit must think again. We really cannot let people off the ordinary operation of the tax unless they do irrevocably commit themselves to making such settlements. Where the settlements are made irrevocable my point is that I am satisfied that there are a number of perfectly deserving cases which came into existence at the time when this way was open to them, and when very honourable people pointed out that the way was open, and I do not think we should be justified in penalising them retrospectively even though we may feel, as I certainly do feel, that there are some other people who may have made use of this device for purposes which cannot be justified.

9.16 p.m.

Mr. Benson: I listened with great interest to the hon. and learned Member for Montgomery (Mr. C. Davies) but I feel that this is an excellent example of a hard case making bad law. It was evidently a very moving case, because it

touched the heart of the Chancellor, but when we come to analyse such data as the hon. and learned Member gave I do not think we shall be prepared to admit that he established that retrospective action would create any very great hardship, because retrospective action is entirely confined to surtax. The hon. and learned Member spoke of the case of a civil servant, but the income of civil servants is not usually a very high one.

Mr. C. Davies: I used it merely as an illustration of where a settlor had reserved to himself, for good reasons, the right of revocation. I did not use it as anything else than an illustration of a settlement.

Mr. Benson: So that actually the hon. and learned Member has wrung the Chancellor's feelings with a purely hypothetical case.

Mr. Davies: Oh, no.

Mr. Benson: Even if it is not a hypothetical case, evidently it is not a case where there is any great hardship, because the retrospective collection of tax cannot be on a very large scale. The tax cannot be at a very high rate, and this Clause relates only to Surtax on that part of the income which is involved in the settlement. When one comes to analyse it it becomes a question of whether, on the case cited by the hon. and learned Member there was more than £10 of tax involved. A civil servant would not have a very high income, and if only a small section of that income was liable to retrospective collection of Surtax the amount could not be very much. This is the hard case which is put before us in order to obtain a modification of this Clause, when we know that a modification will apply not merely to hard cases where the Surtax is at a very low rate but will apply to settlements which have been definitely evasive in their object, and those evasive settlements are generally those which would attract tax at a high rate, because it would not be worth while to make an evasive settlement unless the tax to be avoided was at a fairly high rate.
If the Chancellor does modify the Clause along the lines suggested, I do hope that he will not accept the suggestion to break into the middle of a seven years' trust and, if it has three or four


years to run, allow those three or four years to be outside the scope of tax. These settlements in the past have had the advantage of two things: first the advantage of avoiding tax and, secondly, the advantage of revocability. If they are going to receive the added advantage that retrospective action is not to apply to them, I think the very least the Chancellor can do is to ask them to make their trust irrevocable not only for a remaining, broken part of seven years but irrevocable for the full seven years.

Sir W. Brass: I beg to thank the Chancellor of the Exchequer for what he has said, and to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendments made:

In page 35, line 6, after "arising," insert "under the settlement."

In line 16, after "arising," insert "under the settlement."—[Sir J. Simon.]

9.22 p.m.

Sir Alfred Beit: I beg to move, in page 37, line 4, after "but," to insert:
in all cases other than cases to which the provisions of Sub-sections (1) and (2) of this Section apply.
I do not think it will be necessary for me, in view of the generous statement just made by the Chancellor of the Exchequer, to press this Amendment, but as he has said that it was not possible for him to distinguish between genuine and non-genuine trusts, I would draw his attention to the fact that I made my Amendment rather more restricted than that of the hon. and gallant Member for Clitheroe (Sir W. Brass) and others. I restricted it to Sub-sections (1) and (2), referring to settlements of property where normally there is no question of the settlor drawing the income, and I omitted Subsection (3), which deals with what I think are known as accumulator trusts—at least, I am informed that that is what it deals with, though from the wording it is rather difficult to understand it. I wanted only to call the attention of the Chancellor of the Exchequer to the fact that in this Amendment he may find a suitable means of distinguishing between the good and the bad trusts.

9.24 p.m.

The Attorney-General: I do not think my hon. Friend will expect any statement

from me. As he has said, the point raised by the Amendment is covered by what my right hon. Friend the Chancellor of the Exchequer said just now. I am not certain whether the distinction which he thinks can be drawn between bona fide and non-bona fide trusts will quite satisfy my hon. and learned Friend the Member for Montgomery (Mr. C. Davies), but undoubtedly we shall see whether assistance can be drawn from it in considering the Amendment to be put on the Paper.

Sir A. Belt: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause, as amended, ordered to stand part of the Bill.

Orders of the Day — CLAUSE 33.—(Disallowance of deductions from total income of certain sums paid by settlor.)

9.25 p.m.

Mr. Benson: I beg to move, in page 38, line 7, to leave out from the first "made," to the second "and," in line 8.
As I understand the object of this Clause, it is to strengthen a Clause of the 1936 Act dealing with accumulator trusts in which the income is paid annually under the trust deeds by the settlor. Apparently the 1936 Clause was found not quite adequate, and this seems to be a strengthening Clause, but as it is drafted it seems to catch only those trusts which are created in the future. Irrevocable trusts created in the past mainly for the purpose of tax avoidance are not caught by this Clause because it will not apply to any irrevocable trusts made before the 26th April, 1938. There is apparently a distinction between irrevocable trusts and revocable trusts in this Clause and Sub-section, because revocable trusts are caught elsewhere and irrevocable trusts are not caught except here. The objection I have is that irrevocable trusts created in the past are not caught.
The only reason I can think of for this distinction is that the present Government are taking a rather lenient view of the situation, for if anybody has made an irrevocable trust in the past and cannot get hold of the income and cannot revoke the settlement, he is allowed by the Government to escape. I think every other form of settlement we have attempted to tax has enabled the settlor in some way


or another to revoke the settlement or obtain a variation of it. But here is a settlement which is irrevocable, and there is no possibility of a settlor obtaining any modification, therefore the Treasury seem to say: "If a settlor has got himself into this tangle and has settled his income permanently and irrevocably and cannot in any shape get hold of it we will not make that trust subject to taxation." If I am correct in my reading of this very complicated Clause I certainly think that trusts made for tax avoidance purposes, irrespective of their date, and irrespective of whether they are revocable or irrevocable, should be taxed.

9.30 p.m.

The Attorney-General: By way of explaining this Clause I hope I shall be in order if I make just a passing reference to the kind of settlement with which we have been dealing. We have been dealing, as the hon. Gentleman the Member for Chesterfield (Mr. Benson) said, with settlements which in certain circumstances could be revoked. At the end of his speech the hon. Member referred to tax avoidance. The main kind of machinery set up for tax avoidance has always been machinery under which, though on the face of it the settlor parted with his income, in fact it could come back to him in certain circumstances or he could get it in some other form. In this Clause we are dealing with irrevocable settlements which are really on a different basis. When a man makes an irrevocable settlement he does in fact part with the control over the money, and therefore that is not within the category which I have attempted to describe, namely, a settlement by which in one way or another the settlor did get back the money, or get whatever was distributed. The purpose of this Clause is to see that where an irrevocable settlement is used to accumulate income the settlor in future should not be in a position to treat the annual payments, which as it were go into a money-box, as not being his income, because he will know, with this Clause before him, that he is setting up what is really a method of saving money.
Ordinary men who are not able to resort to machinery of this kind have, of course, to make their savings out of their income after it has paid tax. But it does seem to me that it would be wrong to make this Clause, as the hon. Gentleman

suggests, apply to irrevocable settlements that have been made in the past. The man, by the settlement which he has made, has parted with all possibility of getting back the income. It is not a case in which the funds can revert to him, and he has ceased for any purpose to receive any income from it. I think it will be unwise to alter his tax position by making a provision of this kind apply to the past. But for the future those who make accumulating irrevocable settlements will have this Clause before them, and they will realise that the mere setting up of an irrevocable settlement as the machinery for saving money which they desire to go to their children or other beneficiaries, will not enable them to deduct from their income for Surtax purposes the annual payment which goes to their money-box.

Mr. Benson: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Orders of the Day — CLAUSE 34.—(Sums paid to settlor otherwise than as income.)

Amendment made: In page 39, line 3, after "paid," insert "to the settlor."—[Sir J. Simon.]

9.33 P.m.

Colonel Gretton: My name is attached to an Amendment in page 40, line 3, after "Act," to insert:
other than a settlement made before the passing of this Act for valuable consideration, or as part of a family arrangement, or by a person under the age of twenty-five years.
I do not, however, propose to move it, but I beg to reserve my rights, if I should be advised that the purport of the Amendment is not already covered, or if the words of the Chancellor of the Exchequer do not cover this case, to move it again on the Report stage.

The Deputy-Chairman (Captain Bourne): I gather that the right hon. Gentleman is not moving his Amendment?

Colonel Gretton: No.

9.35 P.m.

Mr. Hely-Hutchinson: I beg to move, in page 40, line 14, at the end, to insert:
or any sum paid to the settlor by u ay of loan on mortgage or charge of freehold, leasehold, or other property of the settlor


to an amount not exceeding two-thirds of the value of the property mortgaged or charged by the settlor as security for repayment of the said loan.
This is one of the Clauses which, for the purpose of enabling the revenue to escape the effects of tax evasion, regards as income what everybody has hitherto regarded as capital. It goes further than that. In Sub-section (5, a) it defines a capital sum beyond any possibility of doubt. We think that the Clause goes further than the Government intended, in that it specifically includes legitimate transactions. It may be that the maker of a settlement desires to borrow some of the money for the purpose of buying a house; so far as we can see that possibility is specifically excluded by (a, i) and (a, ii).

9.37 P. m.

The Attorney-General: The need for this Clause, as my hon. Friend no doubt realises, is that certain people have set up machinery under which the income goes in at one slot and the same amount of money comes out below, but when it comes out below, they say it is a capital payment, whereas they deduct from their total income returns what they have put into the slot above. Therefore, that machinery, as my hon. Friend would be the first to recognise, has to be dealt with. The Clause covers cases in which money comes back to the settlor, very often exactly the same amount as the income, purporting to be by way of loan, although the settlor may never be called upon to repay it. The Amendment seeks that the Clause shall not apply to a loan if the settlor gives security by way of mortgage that the loan does not exceed two-thirds of the value of the property.
No doubt the object of my hon. Friend is to except from the provisions of the Clause cases in which there has been a genuine loan transaction, but the trouble is that it is impossible to distinguish, and that his words would not distinguish, between a genuine loan transaction and a transaction entered into to enable the moneys to be taken out without the settlor's financial position being any the worse. If he were the possessor of a loan which he did not desire to be mortgaged for that purpose, he could execute a deed of mortgage, and on the face of it the loan would be secured, but as, in these cases, he has complete control over what the trustees do, he could get a release

from the loan and get the mortgaged property back. While appreciating the purpose of this Amendment, we came to the conclusion that it could easily be used by people in certain circumstances to evade the Clause.
I would call attention to the fact that the Clause applies only to loans made in current and future years, and, therefore, if there is any genuine transaction in the past the Clause does not apply to it. All that results from what I have said is that if a man genuinely desires to raise money on mortgage he must be careful not to raise it from the trustees of a settlement of this kind. He must raise it elsewhere, and not on his own trustees. I appreciate the object of the Amendment, and if I could find words to exclude from the operation of the Clause genuine loan transactions I would do so; but we have come to the conclusion that the Clause cannot be so limited that no harm will be inflicted in future. I, therefore, ask the Committee to resist the Amendment, although perhaps my hon. Friend will see his way not to press it.

9.42 p.m.

Sir R. Tasker: This matter goes further than loans for mortgages. It relates to charges on freehold. Trustees who hold in trust property are always called upon to spend large sums of money in repair to keep the property in a proper state. It is well known that frequently when leases are running out no money is spent on the property, but with freeholds it is the reverse. The owner is called upon to spend large sums of money in restoring the property. I could give many cases where the competent authority has required property to be restored to a habitable condition. My hon. Friend the Member for Hastings (Mr. Hely-Hutchinson) seeks to enable the Inland Revenue authorities to give redress to those who at present cannot get redress. It is difficult to get redress as you have to prove everything. You have to prove that the charge which you are making is not for an extension of the premises. I would like to preserve my right to criticise this Clause on the Report stage. I hope that the right hon. and learned Gentleman will bear in mind the cases which I have instanced in connection with the repair of property.

9.43 P.m.

The Attorney-General: My right hon. Friend has not given any undertaking


with regard to Clause 34. The point which my hon. Friend has in mind is quite a different one, and I do not want there to be any misunderstanding about it.

Mr. Hely-Hutchinson: Does the statement of the right hon. and learned Gentleman mean that no trustee of a settlement may at any time advance money to the original maker of the settlement?

The Attorney-General: In cases in which the money is undistributed income, that will be done at the risk of the sum advanced being held to be income. That is clear, but I do not think it is possible to draw the line which my hon. Friend would seek to draw between the genuine transactions and the others. What my hon. Friend has asked represents the conclusion which we had in mind.

Mr. Hely-Hutchinson: I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause, as amended, ordered to stand part of the Bill.

Orders of the Day — CLAUSE 35.—(Supplementary provisions as to settlements.)

Amendments made:

In page 41, line TO, at the end, insert "or a beneficiary under."

In page 42, line 14, after "income," insert:
in so far as such expenses are not included in the sums mentioned in the last foregoing sub-paragraph.

In line 17, leave out the first "of," and insert "by which."

In line 17, after "income," insert "arising under the settlement in that year."

In line 21, at the end, insert:
exceeds the aggregate amount of any such sums or expenses as aforesaid paid in that year which are properly chargeable to that income.

In line 27, after "of," insert" or a beneficiary under."—[Sir J. Simon.]

Clause, as amended, ordered to stand part of the Bill.

Clauses 36 to 40 ordered to stand part of the Bill.

Orders of the Day — CLAUSE 41.—(Amendments as respects property transferred to, and shares in, certain companies.)

9.46 p.m.

Brigadier-General Clifton Brown: I beg to move, in page 47, line 14, to leave out "or Section thirty-five."

The question dealt with in this Amendment and the two succeeding Amendments—in line i8, leave out "and Sub-section (3) of the said Section thirty-five."—and in line 19, at the end, insert:
Provided that this Sub-section shall not apply in any case where the transfer in respect of which the liability to estate duty arises was made before the commencement of the said Act."—
is rather complicated, and I should like to ask you, Captain Bourne, whether, in moving the first Amendment, I may discuss all three together, moving the other two formally if there is any chance of getting them accepted?

The Deputy-Chairman: I think it would probably be of advantage if we were to have a general Debate on the first Amendment. The other two would stand or fall by the first.

Brigadier-General Brown: The three Amendments relate to a provision in the Finance Act, 1930, at the time of the passing of which Mr. Philip Snowden was Chancellor of the Exchequer. Section 34 of that Act related to Estate Duty on unsettled property, and Section 35 to Estate Duty on settled property. Both of these Sections were to a certain extent retrospective, that is to say, they referred to private estate companies which had been started since 1918. Section 34 enabled companies to reorganise and carry out the new law, but, generally speaking, under Section 35 this was very difficult to do; and, although the transactions in question were supposed to be legal and proper at the time the companies were formed, and though, in carrying them through, large sums were paid to the Revenue as stamp duties, still the liability to Estate Duty was imposed in the Statute. At the same time, however, no doubt in consideration of these difficulties which were put upon companies which had been quite fairly formed, the concession was made by Mr. Snowden in that Act that, as regards cases coming under Sections 34 and 35, properties which were deemed to pass on death by reason of these Sections were treated as estates by themselves, and not aggregated with other property. for the purpose of determining the rate of Estate Duty.
That was thought to be fair and equitable in those days, but something would appear to have happened to induce the Chancellor of the Exchequer to consider


not to be fair what was considered to be fair then, and to withdraw the concession in question by Sub-section (2) of Clause 41 of the present Bill. In view of the facts to which I have referred, it seems unfair to do this in the case of a settled estate which would come within the provisions of Section 35 of the Act of 1930, and the Amendments I have put down would have the effect of providing that settled estates falling within that Section would still receive the benefit of non-aggregation for Estate Duty purposes. If it is suggested that some estate companies have been formed with the object of getting the advantages of non-aggregation—I do not know of any, but the Chancellor may—an Amendment could be brought in to except such estates from the proposals I have made. We are only asking that the advantages of non-aggregation should be continued in the case of estate corn-panics which were perfectly fairly formed, and in their case only.

9.52 p.m.

Sir J. Simon: My hon. and gallant Friend has put his point very clearly. I agree with him that the subject is rather a complicated one, but that is neither his fault nor mine. He is quite right in saying that in this Clause we propose to make a change in the hitherto existing provisions of the Finance Act, 1930, but I think I can satisfy him that the change is justified and necessary. Broadly speaking, subject to exceptions which do not matter now, the principle of Estate Duty is that you aggregate the estate, putting upon it its proper value as a whole, and put the duty on that total. That is very necessary, because the rate of duty is not a level rate, but increases as the estate grows larger. If, therefore, there were estates in the case of which aggregation was not required, but different parts of which were treated separately, and if to each separate portion the appropriate rate of duty was applied, a very great deal of duty would be lost. Really, I believe the omission in the Act of 1930 was largely an accident, but, whether it was an accident or not, it has worked out in a way which, I think, nobody would welcome. I will give an actual case, without making any reference by which it could be identified. It is a case in which advantage was taken of the non-aggregation provision, with the result that the existing law, designed to check avoidance, is itself being used as an

instrument of avoidance, and it has enabled methods to be adopted which still further reduce the Estate Duty liability by the simple expedient of splitting the property which it is proposed to transfer and then transferring it, not to one, but to several companies, thereby securing lower rates of duty on the various non-aggregable parts. The case I shall give is not an average case, but the worst case. It might, however, happen, and indeed it has happened, at any rate in one instance. One property of the value of £800,000 was split up between five companies to which Section 34 of the Act of 1930 applies—

Lord Ansley: Was it landed property, or finance property? That is rather important.

Sir J. Simon: I am afraid I cannot say at the moment, but I will try to find out. Thus, instead of there being one non-aggregable estate, in the ordinary case there were five separate estates, each in the hands of a separate company. This method resulted in saving the total estate £164,000 Estate Duty. I do not think that can be justified. I propose, therefore, that:
For the purpose of determining the rate of estate duty, property which is deemed to pass on the death of any such person by virtue of the provisions of Section thirty-four or Section thirty-five of the said Act shall not be an estate by itself, but shall be aggregated with other property which is to be aggregated under Section four of the principal Act; and accordingly Sub-section (7) of the said Section thirty-four and Sub-section (3) of the said Section thirty-five shall cease to have effect.
The other provision, the other change made by this Clause is made by Subsection (3) The Committee have the terms of that Sub-section before them. The Amendment is an Amendment to the law providing for the valuation of shares in the companies to which these Sections apply, and the ascertainment of the notional sum of money which is deemed to pass on death under Section 34. Section 34 of the Act of 1930 imposed a duty on a notional sum bearing the same proportion to the company's assets as the benefits drawn from it by the person concerned bear to its total income. Section 37 provides that in cases where a notional sum is due to pass under Section 34 the valuation of all ordinary shares shall be by reference to the value of the assets instead of on the usual market value or principal basis. For this purpose it


is necessary to find the value of the total assets of the company. There is a definition about that. In the course of that definition appears this passage:
The par or redemption value, whichever is the greater, of any debentures, debenture stock and preference shares of the company.
That provision was to enable the deduction of an amount not less than what would have to be paid to get rid of the debenture. The result has been, in the case of these one-man, or family, companies, that there has been an increase in the number of issues in preference shares of very low rates—say, one-quarter or one-eighth per cent.—for the sole purpose of reducing the value upon an assets basis of the ordinary shares. If you construct your company in that way, you by that means reduce—I must say artificially and deliberately reduce—the value that is going to pay tax. The largest case arising out of that Section 37 that has been discovered relates to a company with £5,000,000 capital, part of which was in one-eighth per cent. preference shares of £1. Following the ordinary practice, by reference to the formula in Section 37, these one-eighth per cent, preference shares must be deductable at their par value; but it is only on their much smaller principal or market value that they pay duty. Subsection (3) provides that where ordinary shares are to be valued on the assets basis, the deduction to be taken from the gross value of the company's assets for preference shares, etc., shall be ascertained by reference to their principal value: that is to say, the value at which they will be assessed for Estate Duty.
It is estimated that the combined effect of these two flaws which have been discovered in the Act of 1930—Mr. Snowden's Act—is to cause a loss of duty to the Exchequer of £250,000 a year. Unless we deal with it, it is a loss which may very easily, in the next few years, considerably increase. Consequently, I have no hesitation in asking the Committee to agree to my Clause, which I think, with all respect, is a distinct improvement on the provisions proposed by the Chancellor in 1930. In answering the question of my noble Friend, as to whether it was a case of land or a series of estates, the answer is that it was not a case of land, it was a case of funds. They were deliberately divided into five

parts, in order that they might be spread over five separate individuals.

10.2 p.m.

Lord Apsley: My right hon. Friend the Chancellor's explanation shows that he is very considerably at variance with the plea put forward by my hon. and gallant Friend. This Amendment is not designed to assist any companies to avoid taxation. Estate companies are not formed with the idea of avoiding taxation, but of running landed estates in a proper way. My right hon. Friend quotes two examples. He admits himself that one example that he quoted has nothing at all to do with a landed estate or with agriculture. It is purely an arrangement made by some rich man to avoid taxation by splitting up funds among individuals. My hon. and gallant Friend says, "Certainly they should pay; that is just." The object of the Amendment is to prevent landed estates from being mulcted of money which it is proposed to use for the benefit of agriculture. I doubt whether the Chancellor knows how much money is being taken out of agriculture in this way. I had it calculated that some £300,000,000 is being taken out of agriculture, and being returned in the form of subsidy, which is increasing every year, to repay the amount of capital taken from it in former years. That process goes on, and if it is allowed to continue it will ruin every farmer in the country, be he freehold or tenant, be he large or small farmer.
Unless something is done to check the process, agriculture in this country is going to be in a very sorry plight within this generation. Hon. and right hon. Members of this House make speeches advocating a proper agricultural system, but not a single thing is done to check this drain on agriculture. But individuals have done their best to see that agriculture shall be run in a proper way. There are at present only two forms of agriculture likely to succeed; one is a properly run landed estate, and the other is the co-operative form, which also does not have to pay this taxation. I hope that my right hon. Friend will look on it in this way and will not consider this a means of avoiding taxation, but will realise that the estate companies that have been formed already are running their estates in a proper way and giving the best value to the tenants, and are doing the repairs that are necessary from time to


time, continuously, properly and up to date, which the wretched, unfortunate landowner is unable to do, for he has not the funds.
The same applies to the freeholder. Every year we see the freehold farms going back and back, and repairs which should be done neglected because they have not the funds. They have to pay Income Tax, and rates upon agricultural buildings which have become much heavier since there was de-rating on the land. They have not the means themselves to pay Death Duties, and they go on in this happy-go-lucky way trying to do the best they can. Agriculture is not a business which can be run in one generation, but you must look three or four generations ahead. In order to do that, you must have a landowner who knows that his son and grandsons will run the business properly, or you must have a company well managed—and cooperative companies do their bit in that way also—to run it properly. I hope that my right hon. Friend will consider this matter very carefully and not reject it offhand. I hope that he will go into the subject between now and the Report stage to see where the difference lies between any arrangement made between financiers; that he will consider the difference between the idea of avoiding duty and the idea of running an estate properly so as to give the best and the fairest rights to the landowners.

Amendment negatived.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

10.8 p.m.

Brigadier-General Brown: I would draw the attention of the Chancellor of the Exchequer to the last Amendment in my name—in page 47, line 19, at the end, to insert:
Provided that this Sub-section shall not apply in any case where the transfer in respect of which the liability to estate duty arises was made before the commencement of the said Act.
I understood the argument of the Chancellor of the Exchequer was that these companies had been transferred since the Act of 1930. We think that what Lord Snowden thought at that time was that the proposal should apply to these companies and not to any others. We are willing that any companies guilty of the

practice which has been-referred to should be excluded. I shall be obliged if the right hon. Gentleman will look at the proviso and consider the matter again in another place. I should be very grateful at any rate if he would at least consider the matter. In the light of what my noble Friend has said, and having done our best to put a very complicated point, I think there is a great deal more in it than the right hon. Gentleman gave us credit for. He based his speech on quite a different aspect of private companies. Land companies should be treated in a different way. If Lord Snowden found it right to do this—and the right hon. Gentleman has given no reason to show that things have changed since 1930 in this respect—I ask him to consider the matter a little further and to see whether there is not something in the case we have, perhaps very badly, put before him.

10.10 p.m.

Sir J. Simon: I understand the question is that the Clause stand part of the Bill, and I am afraid that I can say only a word or two. I would like to assure my hon. and gallant Friend and my Noble Friend that certainly they may be sure that the Government will give very careful consideration to what they have said. I am not in the least blind to the difficulties of those who are endeavouring to carry on the essential agricultural needs of the country. I can well appreciate that the burdens of Estate Duty and its operation are very severe; I have no doubt that they are. But I cannot help thinking that what was said by my Noble Friend was really rather a general assault on the principle that Estate Duty should be paid on agricultural land than in support of any particular Amendment. I will most carefully look at what my hon. and gallant Friend and my Noble Friend have said. I do not want to rule out the matter without consideration at all, but I think that it will be found that what I have said is the right view. At the same time, I will look again at what they have been good enough to say, and on the question that the Clause stand part of the Bill I invite the Committee to agree to it.

Clauses 42 to 45 ordered to stand part of the Bill.

Orders of the Day — NEW CLAUSE.—(Relief of air-raid protection works from tax under Schedule A.)

"(1) In estimating for the purposes of Income Tax under Schedule A the annual value of any building, no regard shall be had

(a) to any room or other part of the building which has been added at any time after the building was first assessed to tax, or was included in the building before it was so assessed, solely for the purpose of affording protection in the event of hostile attack from the air, and is not occupied or used for any other purposes; or
(b) to any structural alterations or improvements of the building (not being the addition of any such room or other part as aforesaid) made, at any time after the building was first assessed to tax, solely for the purpose of affording such protection:

Provided that this Subsection shall not apply if the building or any part thereof is let and the rent or any other consideration for the lease is greater than it would have been if the room or other part referred to in paragraph (a) had not been added or included, or the structural alterations or improvements referred to in paragraph (b) had not been made, as the case may be.

(2) If, in any year of assessment for which the annual value of any building has been estimated in accordance with paragraph (a) of the last foregoing Sub-section, any room or other part of the building to which no regard has been had by virtue of that paragraph is occupied or used for any purpose other than the purpose of affording such protection as aforesaid, an assessment or additional assessment shall be made so as to include in the annual value of the building the value of that room or other part.

(3) Exemption shall be granted from Income Tax under Schedule A in respect of any separate unit of assessment which is intended to be occupied and used solely for the purpose of affording such protection as aforesaid and is not occupied or used for any other purpose:
Provided that this Sub-section shall not apply to any unit of assessment the whole or part of which is let.

(4) In any case where—

(a) a deduction is to be allowed in respect of the depreciation of any premises being mills, factories or other similar premises, under Sub-section (2) of Section fifteen of the Finance Act, 2937 (which provides for a deduction in computing profits of an amount equal to the repairs allowance or the appropriate fraction of the rating value of the premises, whichever is the less); and
(b) the repairs allowance of the premises is less than it would have been if Sub-section (1) of this Section had not been enacted;

there shall be computed the annual value of any room or other part, or any structural alterations or improvements, to which regard has not been had under the said Sub-section (1), and the amount of the deduction to he allowed as aforesaid shall be increased by the amount of the repairs allowance which would

have been authorised in respect of the annual value as so computed if it had been separately assessed to tax under Schedule A."—[Sir J. Simon.]

Brought up, and read the First time.

10.12 p.m.

Sir J. Simon: I beg to move, "That the Clause be read a Second time."
The Committee may remember that on the Second Reading of the Finance Bill I made an announcement which, I think, was widely welcomed, that we would, in the Finance Bill on the Committee stage, offer to introduce a Clause to secure that the annual value of property should not be increased either for Income Tax, Schedule A, or for rating by reason of expenditure on structural alterations of property made solely for the purpose of protection in the event of air raids. The Committee will, no doubt, recall that I made that statement. Sub-section (1) of the new Clause gives effect to the main purpose that:
In estimating for the purposes of Income Tax under Schedule A the annual value of any building, no regard shall be had—

(a) to any room or other part of the building which has been added at any time after the building was first assessed to tax, or was included in the building before it was so assessed, solely for the purpose of affording protection in the event of hostile attack from the air, and is not occupied or used for any other purposes; or
(b) to any structural alterations or improvements of the building (not being the addition of any such room or other part as aforesaid) made, at any time after the building was first assessed to tax, solely for the purpose of affording such protection."

These words speak for themselves, and I hope that the Committee will think that they are proper provisions to make as they are very useful provisions for the purposes of assisting air-raid protection work. It is necessary to stipulate that the user shall be the sole user.
It really would be quite impracticable to give the concession so that it would cover premises which were not for the absolute use of air-raid protection, but could be used for other purposes as well. I ought also to call attention to Subsection (2):
If, in any year of assessment for which the annual value of any building has been estimated in accordance with paragraph (a) of the last foregoing Sub-section, any room or other part of the building to which no regard has been had by virtue of that paragraph is occupied or used for any purpose other than the purpose of affording such protection as


aforesaid an assessment or additional assessment shall he made so as to include in the annual value of the building the value of that room or other part.
Sub-section (3) gives exemption from Schedule A tax in respect of any separate unit of assessment which is intended to be occupied and used solely for the purpose of protection against air raids. I gave an illustration on the Second Reading of a taxpayer who had in his garden a self-contained and separate shelter. In that event the shelter would not be assessed for Schedule A, and he would not have any tax to pay under that heading. The object of Sub-section (4) is to ensure that the Clause shall not have the effect of increasing the Income Tax charged in respect of mills and similar premises. Under the Finance Act, 1937, Section 15, in computing the profits for the purposes of Schedule D, a deduction is allowed in the case of mills and factories in respect of special depreciation of the building due to the machinery in it. In the type of case in question a deduction is made for Income Tax purposes of an amount equal to the repairs allowance or fixed proportion of the rating value of the premises, whichever is the less. Increases under Schedule A and the rating assessment would be reflected in the figure that represents these proportions, and, therefore, it would increase the deduction which could be made. The Sub-section provides against an increase of Schedule A assessment on account of air-raid precautions expenditure. We shall have a similar provision in the Rating Bill, which is to be separately introduced. We cannot make a provision as regards local rating in the Finance Bill, because it would be beyond the scope of the Bill, but I have already stated that it is intended to have a corresponding provision made which will apply to local rates. These are the only explanations that I need to give, and I hope the Committee will feel that even though this new Clause does not go to the full length that has been suggested in some quarters, nevertheless it is a very valuable Clause, and I am glad to be able to move it.

Mr. Wedgwood Benn: Would a company which carries on business abroad and is subject to British Income Tax receive the advantage of this allowance in their assessment?

Sir J. Simon: I may be wrong, but I do not see how Schedule A of Income Tax, which is a tax charged on the annual value of property in this country, could have any application to a company carrying on a business abroad. I think that is the answer to the right hon. Gentleman's question.

Mr. Bellenger: Should I be right in assuming that Schedule A tax in such a case would be dealt with in the same manner as local rates; that is, it would have to be paid on the property as an outgoing, with nothing to do with profits?

Sir J. Simon: I think that the cases are different.

Sir Ernest Shepperson: Can the right hon. Gentleman say whether any expense incurred in altering a house to meet air-raid precautions requirements would be permitted to be charged as a maintenance cost?

10.20 p.m.

Sir J. Simon: That is a separate point and one upon which I have been questioned a good many times. I will send the hon. Member the reference to my answer, but broadly speaking it is this. A very wide construction will be put on maintenance expenses and there will be many cases, therefore, in which expenses will be deducted as maintenance. But what is not possible is to treat what is unquestionably capital outlay as though it was in the nature of a maintenance charge. That cannot be done.

Clause read a Second time, and added to the Bill.

Orders of the Day — NEW CLAUSE.—(Relief of air-raid protection works from duty on excise licences.)

"(1) Section twelve of the Finance Act, 1924 (which provides that the annual value of any premises for the purpose of the duty on any excise licence charged by reference to the annual value shall be the Income Tax value or, if no Income Tax value is applicable, an amount determined by the Commissioners), shall have effect subject to the following provisions:

(a) in determining under paragraph (b) of Sub-section (1) of the said Section the annual value of any premises where no Income Tax value is applicable, no regard shall be had—

(i) to any room or other part of the premises which has been added at any time after an excise licence was first granted in respect of the premises, or was included in the premises before an excise


licence was first granted in respect thereof, solely for the purpose of affording protection in the event of hostile attack from the air, and is not occupied or used for any other purpose; or
(ii) to any structural alterations or improvements of the premises (not being the addition of any such room or other part as aforesaid) made, at any time after an excise licence was first granted in respect of the premises, solely for the purpose of affording such protection;

(b) in any case where—

(i) regard has been had to the matters aforesaid in estimating the Income Tax value of the premises; or
(ii) any part of the premises would, by reason that it is intended to be used and occupied for the purpose of such protection as aforesaid and is not used or occupied for any other purpose, be exempt from Income Tax under Schedule A if it were not let;

the person applying for the Excise licence may require the Commissioners to assess the annual value of the premises for the purposes of the duty as if there were no Income Tax value applicable.

(2) Where, in fixing the annual licence value of any premises under Sub-section (2) of Section forty-four of the Finance (1909–10) Act, 1910 (which provides that the annual licence value shall be the amount by which the annual value of the premises as licensed premises exceeds the annual value which the premises would bear if they were not licensed premises), the annual value which any premises would so bear is taken to be the annual value of the site thereof cleared of buildings, no regard shall be had, in computing the annual value of the premises as licensed premises to any of the matters referred to in paraFaph (a) of the last fore- going Sub-section."—[Captain Wallace.]

Brought up, and read the First time.

10.22 p.m.

The Financial Secretary to the Treasury (Captain Euan Wallace): I beg to move, "That the Clause be read a Second time."
This new Clause provides for relief from liquor licence duties, in respect of air-raid protection works, corresponding to the relief from Schedule A Income Tax provided by the Inland Revenue Clause which the Committee has just passed. The retail liquor licence duties are in the main chargeable by reference to the Schedule A value under Section 12 of the Finance Act' of 1924, and it is clear that if we are going to provide relief from Schedule A Income Tax in respect of certain improvements made on premises with the object of providing air-raid protection, we ought not to take these improvements into account in the case of licensed

premises when imposing the Excise licence duty. In the normal case the relief would be automatic because under the Inland Revenue Clause the value of the air-raid protection works is to be excluded from Schedule A values, but there are certain cases where the law provides that the licence duties shall be charged, not upon the Schedule A value, but upon an annual value fixed for the purpose by the Commissioners of Customs and Excise. There are two cases where this procedure obtains; first, where the Schedule A value is not applicable because the premises for Schedule A purposes do not coincide with the premises in respect of which licence duty is chargeable, and secondly where the Schedule A value is the amount of a rent paid by a brewer who rents a public house for the purpose of putting in a tied tenant or paid by a tied tenant under a lease. The Committee will appreciate that this new Clause follows naturally upon the one which has already been accepted and I hope they will incorporate it in the Bill.

Clause read a Second time, and added to the Bill.

Orders of the Day — NEW CLAUSE.—(Repeal of stamp duties in respect of honours and dignities, 54 and 55 Vict., c. 39.)

"Stamp Duty shall cease to be chargeable under the following headings in the First Schedule to the Stamp Act, 1891, namely, ' DOCKET made on passing any instrument under the Great Seal,' GRANT or LETTERS PATENT,' and WARRANT under the sign manual.'"—[Sir J. Simon.]

Brought up, and read the First time.

10.25 p.m.

Sir J. Simon: I beg to move, "That the Clause be read a Second time."
Hon. Members no doubt will be familiar with the Schedule to the Stamp Act, 1891, but, none the less, I think I had better give a short explanation of this new Clause. A committee was appointed in October, 1936, to inquire into the fees and duties which were payable to public funds on the occasion of honours and dignities conferred by the Crown, and on appointments to Office under the Crown. That was in October, 1936. That committee issued an interim report in April, 1937, dealing with part of the matter, and it has now issued a final report. As regards the first report, it recommended the abolition of a lot


of these charges and fees in connection with honours and dignities under the Crown, and its recommendations were carried into force in the Finance Act last year.
Now we have the Committee's final report, which deals with less important things, under the general heading of appointments to offices under the Crown. Here again, for some years past fees have been charged when persons have been appointed to certain offices under the Crown. There does not seem any obvious reason, when a person has been selected because he was thought to be a meritorious person to hold an office under the Crown, that he should be required to pay a fee for it, and certainly it is very much better that he should be appointed without any particular burden being put upon him, for his income may be small. I think the Committee generally will agree that we should get rid of these fees. The Chancellor of the Exchequer parts very unwillingly even with the smallest item of revenue, and if the Committee agrees with me now, I shall lose something like £2,000 a year. This is collected in a series of small fees from a number of people who are in due course appointed to various offices under the Crown, and the recommendation is that we should put an end to these fees. That is the provision contained in the Clause, which I hope the Committee will accept unanimously.

10.27 p.m.

Mr. Pethick-Lawrence: I do not propose to raise any objection to this new Clause, but I cannot help wondering why what is apparently a very trivial matter was left out of the Committee's first report. It would seem natural that when they were getting rid of the fees of larger offices, this very small sum should have fallen into the same category. I would like to know the reason why it was omitted. I should like also to know what loss of revenue the Chancellor suffered under the provision of the Finance Act, 1937, which dealt with the larger fees. I do not suppose that any hon. Member would wish to retain these ancient things when they represent such a small revenue to the Chancellor and when, in fact, they militate in this case against comparatively small people who are not necessarily getting large emoluments.

10.28 p.m.

Sir J. Simon: In reply to the right hon. Gentleman's first question, I believe the explanation why we should take two bites at the cherry—I agree that the second is a very little one—is that the Committee hastened to make its interim report before the Coronation, or before any list connected with it, and this small matter was left over and was dealt with by the Committee after the Finance Bill of last year was passed. I agree that it would have been natural to deal with the whole matter at the same time, but I have given the reason why that was not done. With regard to the right hon. Gentleman's second question, as to how much loss resulted from the proposal adopted last year, I am not quite sure that I can give him an answer. I had better not speculate about it, and I do not think I have available anybody who can tell me. I fancy that there is a difficulty here, because, as the right hon. Gentleman knows, there were cases where the fee was strictly chargeable and was remitted, and other cases where it was exacted. Therefore, it would be a chancy calculation at any rate, whether small or great. For my part, I am glad that it has come to an end, for the system is completely archaic, and I do not think it is right in a democratic State.

Clause read a Second time, and added to the Bill.

Orders of the Day — NEW CLAUSE.—(Amendment as respects duties on motor cars, musical instruments, clocks, films, etc.)

"(1) As from the appointed day, Section three of the Finance Act, 1925 (which imposes duties on motor cars, musical instruments, clocks, films, etc.) shall be repealed, and accordingly the enactments (which amend or relate to that Section) set out in the Schedule (Enactments relating to certain customs duties repealed) to this Act shall also be repealed as from that day to the extent specified in the third column of that Schedule.

(2) The Treasury shall by order direct that as from the appointed day—

(a) there shall be charged under Section three of the Import Duties Act, 1932, on all goods to which this Section applies (except mouth-organs), an additional duty of such an amount as will, with the general ad valorem duty, amount to the rate of the duty chargeable thereon immediately before the appointed day under Section three of the Finance Act, 1925; and
(b) drawback of the duty or duties chargeable under Part I of the Import


Duties Act, 1932, shall be allowed under the Second Schedule to that Act in respect of all goods to which this Section applies.

(3) For the purpose of any order for the time being in force (whether made under the last foregoing Sub-section or otherwise) providing for the allowance of drawback of any duty or duties chargeable under Part I of the Import Duties Act, 1932, in respect of any goods to which this Section applies, any duty paid in respect of any such goods before the appointed day under Section three of the Finance Act, 2925, shall be deemed to have been chargeable under the said Part I.

(4) Section five of the Import Duties Act, 1932, and Section two of the Ottawa Agreements Act, 2932 (which exempt Empire goods from the general ad valorem duty and any additional duty), shall not apply to any goods to which this Section applies; but, as from the appointed day, any such goods which, but for this Sub-section, would be exempt by virtue of those Sections from the general ad valorem duty and any additional duty (hereafter in this Section referred to as "Empire goods ") shall, subject to the next following Sub-section—

(a) be charged with those duties at the preferential rate of two-thirds of the aggregate full rate of those duties applicable to the goods; or
(b) in the case of goods on which the general ad valorem duty alone is chargeable, be charged with that duty at the preferential rate of two-thirds of the full rate of that duty applicable to the goods.

(5) If at any time the Treasury are satisfied that any agreement set out in the First Schedule to the Ottawa Agreements Act, 2932, which is for the time being deemed to be in force for the purposes of that Act, requires that, in the case of goods of any class or description produced or manufactured in and consigned from the country the Government of which is a party to that agreement, any duty or duties charged at a preferential rate under the last foregoing subsection shall not be charged or shall be charged at a reduced preferential rate, the Treasury shall by order direct that that duty or those duties shall not be charged or shall be charged at that reduced preferential rate, as the case may be, on any goods of that class or description being Empire goods:

Provided that—

(a) the Treasury shall revoke any such order or any provision thereof directing that any such duty or duties shall not be charged on Empire goods of any class or description, if and when they are satisfied that no such agreement so in force requires that the duty or duties shall not be charged on goods of that class or description produced or manufactured in and consigned from any country the Government of which is a party to any of the said agreements; and
(b) the Treasury shall revoke any such order or any provision thereof directing that any such duty or duties shall be charged on Empire goods of any class or description at a reduced preferential rate, if and when they are satisfied that no such agreement so in force requires that goods of that class or description produced or manufactured in

and consigned from any country the Government of which is a party to any of the said agreements shall be charged at that reduced rate; and
(c) every such order shall provide that, in relation to any goods produced or manufactured in a country the Government of which is a party to one of the said agreements, the provisions of the order shall not in any case have effect at any time when that agreement is not deemed to be in force as aforesaid.

(6) Paragraph 4 of the Fifth Schedule to the Finance Act, 1933 (which enables the Commissioners to require proof that any goods are, under any provision of the Import Duties Act, 1932, exempt from duty or chargeable with duty at a rate less than the full rate), shall have effect as if the last two foregoing Sub-sections were provisions of the Import Duties Act, 1932.

(7) Any order made by the Treasury under this Section shall be deemed for all purposes to have been made under the Import Duties Act, 1932:

Provided that an order made under paragraph (a) of Sub-section (2) of this Section—

(a) for the purposes of Section nineteen of that Act shall be deemed not to be an order imposing a duty of customs; and
(b) for the purposes of proviso (b) to Sub-section (5) of the said Section nineteen (which provides that an order may not be varied without a further recommendation so as to increase the rate of an additional duty above the rate specified in the original recommendation) shall be deemed to have been made on a recommendation of the Import Duties Advisory Committee specifying the rates of duty imposed by the order.

(8) For the purpose of this Section, the expression "the appointed day" means the twentieth day of August, nineteen hundred and thirty-eight, and the goods to which this Section applies are all goods which immediately before the appointed day were chargeable with a duty of customs under Section three of the Finance Act, 1925."—[Mr. Stanley.]

Brought up, and read the First time.

The President of the Board of Trade (Mr. Oliver Stanley): I beg to move, "That the Clause be read a Second time."
We had an opportunity on the Financial Resolution upon which this Clause is based, of discussing this question only last week. The Clause follows very closely the lines of the Financial Resolution and the explanation which I then gave, and I think it will be convenient if I now formally move the Second Reading and later reply to any questions which may be raised.

10.32 p.m.

Sir Percy Harris: My hon. Friends and I have already expressed our view about


this alteration in the law which transfers the famous McKenna Duties from the procedure of the Finance Act, 1925, to the procedure of the Import Duties Act, 1932. I do not intend to give an encore on this occasion, or to ask the Committee to go to another Division upon this question, but I think it unfortunate, now that we have the Chancellor of the Exchequer here, that he should transfer the responsibility for this new departure from the Treasury to the Board of Trade. I think we are entitled to know whether he had made any estimate of the possible loss of revenue involved. These Duties at the, I will not say comparatively modest, but at any rate not prohibitive rate of 33⅓ per cent., have been a considerable source of revenue, and if they are to be transferred to the Import Duties Act for the direct purposes as I understand it, of keeping out motor cars, they will cease to be a source of revenue and become a loss to the revenue.
There are two points which I wish to make. If the Import Duties Advisory Committee after their investigation which we assume will be considerable, come to certain conclusions, we ought to have a guarantee that their recommendations will be brought to the notice of the House at a reasonable time so that they may receive careful scrutiny. My second point, to which I attach even more importance, is that we should have a full report giving all the evidence and all the facts and figures on which the Committee arrive at their conclusions. A new procedure of this kind, involving a great interest in this country, is very important and I think I express the feeling of the whole Committee when I say that I hope we shall not merely have the recommendations placed before us, but also facts and figures explaining why the Committee arrive at their conclusions. It is possible, I might say almost probable, that they may come to the conclusion that this wealthy and prosperous industry which has done so well in the last 20 years, has adequate protection at present. In that case those who have been pressing for special protection for this industry are entitled to know how the Committee have reached their conclusion. Equally, if they decide that it is necessary to increase this duty, and give this industry further protection, we ought to have the facts and figures on which they base that decision.

10.35 p.m.

Mr. McLean Watson: As one who supported the Government the last time this matter was discussed, I should like to put some questions to the President of the Board of Trade. Does he intend to make these duties really effective, that is to say, to keep these foreign commodities out of the country, or are we to have a repetition of what has gone on up to the present, with increased quantities of these foreign manufactured goods coming into this country, despite the tariffs imposed upon them? I drew the attention of the House quite recently to the fact that we have increasing numbers of questions being addressed to the President of the Board of Trade about the increased quantities of foreign goods coming into this country, despite the operation of this particular weapon with which he is asking the Committee to arm him. Does he intend to make this system that the Government have adopted really effective in keeping certain forms of manufactured goods out of this country?
As I have said, I supported the Government the last time this question was before us, because I want to see British industry protected as effectively as it can be, and the Government have assured us that this system will give us protection. Well, we have had it in operation for the past six or seven years, and it is not protecting the industries that it is purporting to protect. I am willing to adopt measures that will protect our industries, but I am just as definitely of the opinion that this system will not give us the protection that we require. The right hon. Gentleman knows that increasing quantities of foreign goods are coming into this country, goods that are produced under infinitely worse conditions than those in which they are produced here, and I ask him to tell the Committee frankly whether he intends to make this system really effective.

10.38 p.m.

Sir Joseph Nall: I am sure that the remarks of the hon. Gentleman who has just sat down were all to the good, because they illustrate the fact that this matter of protecting our industries by means of import duties is no longer a party question, but is supported from all sides of the House. I want to reinforce this point, that it is to be hoped that the addition of this Clause to the Bill, transferring this section of the old McKenna duties to the purview of the Import Duties


Advisory Committee, is really something more than mere eyewash. it means nothing at all if the Import Duties Advisory Committee does no more than it has so far done in so many cases where it might have done quite a lot, had it really had the intention of doing anything and had the Treasury been willing to carry out its recommendations. The reports of that committee are entirely futile unless they are implemented by executive action, and this Clause means absolutely nothing at all unless the Government are going to make use of it and to act upon it.
In these circumstances I hope my right hon. Friend the President of the Board of Trade is bringing the Clause forward in all good faith and with the intention of making use of it. After all, the mere fact of its being tabled to-night is a forewarning to quite a number of people to get ahead of the import duties and to implement their stocks in this country before any action is taken under this Clause. It is quite conceivable that we may see a considerable increase in the imports not only of German cars but of every kind of foreign car which is already imported into this country, with the result that, unless this Clause is implemented by executive action in a comparatively few weeks, it will really be no use because several years' stock will have been brought into this country. I hope that effect will be given to it. It would have been much more simple and effective if, instead of this Clause, my right hon. Friend the Chancellor had proposed the simple remedy of doubling the McKenna duty. That would have been immediately effective. It would have secured the objects which this Clause purports to aim at, and we should have had an indication that the Government are really in good faith in moving this new Clause.

10.41 p.m.

Mr. Ede: I am, curiously enough, in favour of something that the hon. Member for Hulme (Sir J. Nall) said towards the end of his speech. I would have preferred this matter to be dealt with in the Finance Bill, because there would then have had to be a full justification for it and all the reasons for the proposed alteration. When this matter comes before us from the Import Duties Advisory Committee, if it ever does—and suspicion seems to have now been generated in strange and diverse quarters, and I shall

soon be getting suspicious about it myself if I find people both to the right and the left of me entertaining this suspicion—[Interruption]. It just shows the extraordinary position we are getting into on the matter. Not that I am worried very much about what the Liberal party thinks of it. Can we have to-night some reason for wanting to do this particular thing, because up to the present we have had no reason other than the fact that the Import Duties Advisory Committee, through their report, will prevent the hon. Member for Barnstaple (Mr. Acland) from making a speech on the lines that he desires to make when the matter comes before the House.
The right hon. Gentleman has been questioned about the German motor cars which have been imported in such large numbers, and I understand from the answers he has given that he is not at all sure of the way in which they are placed in this country at such a comparatively small price. Three suggestions have been made. The first is that the German Government are directly subsidising them. The right hon. Gentleman has never accepted that, although it was put to him by some hon. Gentlemen sitting behind him. Then there was the suggestion that the German Government were using some method of currency exchange by which they were able to give a concealed subsidy. I was bound to listen to that with great respect because it was put forward by the hon. Member for South Croydon (Mr. H. G. Williams), who speaks with an assurance on these and other matters which makes it difficult to believe that he could possibly ever be mistaken. That was put by him on more than one occasion to the right hon. Gentleman, but I gather that the right hon. Gentleman did not accept it, although he did not deny it. He only said that there was a great deal of mystery about the matter. Recently the third suggestion has been put forward that there was some arrangement among the motor car producers of Germany by which, through some system of mutual arrangement, they were able to place these cars abroad at this low figure. That also has been put to the right hon. Gentleman in the form of a question and up to the present he has not accepted it.
He now comes to the House and asks for the transfer of these duties from the Finance Bill to the Import Duties Ad-


visory Committee, so that apparently that committee can investigate these matters and in course of time produce a report upon which this House may be asked to impose some duty other than this duty of 33⅓ per cent. Has the right hon. Gentleman, in deciding that the duties ought to be transferred, reached any conclusion about the three alternatives which have been suggested by his own supporters, or does he think the matter requires investigation to discover the real means by which these cars are placed in this country at the price they are? I am not one of those who supported the Government the other night. I had intended to support them until the right hon. Member spoke, but his speech was of such an alarmist nature that I found myself unable to vote with him, and I hope that this evening he will tell us which, if any, of the three explanations suggested by his supporters has his support, or whether he still believes the matter is one of mystery which can only be solved by the kind of inquiry which the Import Duties Advisory Committee can conduct.

10.47 p.m.

Mr. T. Johnston: To the three questions put by my hon. Friend may I add a fourth? Under this Clause motor cars are, for some reason hitherto not explained, to be handed to the Import Duties Advisory Committee for their recommendation as to the tariffs which shall be imposed. Is it the case that the agitation about motor cars which has resulted in the appearance of this Clause has arisen out of the importation of Opel cars? Is it the case that that Opel car is manufactured in Germany by an American company; that all the capital is American; that the corporation importing the car into this country is an American corporation; and are the right hon. Gentleman and the Government now busily engaged in preventing an American corporation—which also owns the Vauxhall car—from getting its money out of Germany? Will the right hon. Gentleman tell us frankly if it be the case that the Opel car is manufactured not with German capital at all; that there is no question of Herr Hitler or any one else subsidising its exports by Germany; but that, as a matter of fact the American company which initiated the Opel works in Germany is now desirous of getting its money

out of Germany in the shape of cars; and are the right hon. Gentleman and his friends now doing what they can to prevent this company getting its money out of Germany?

10.49 p.m.

Mr. Levy: I was one of those who led a deputation to the Chancellor of the Exchequer and my right hon. Friend the President of the Board of Trade with regard to this Clause. The reason for the deputation was this: as the Committee knows quite well, the Import Duties Advisory Committee was set up for the purpose of allowing industries which felt they could make out a case for duties to be increased or decreased, as the case may be, to submit their case for consideration to the Committee. Here we have rather a peculiar position. It is true that among the industries dealt with under the Clause is the motor car industry, but I hope the Committee will agree that the Clause also covers a number of other industries which, by the very character of the duties coming within the scope of the Bill, were precluded from stating their case before the Import Duties Advisory Committee. The industries concerned considered that it was exceedingly unfair that some industries were permitted to state their case before the committee for their consideration and other industries, simply because they happened to come within the scope of the Treasury under the McKenna Duties, were precluded from doing so. The question as to whether the import duties are going to be increased or decreased is by the way, but what is important is that every industry should be permitted to go before the Advisory Committee to state its case, if it felt so disposed, and this Clause certainly gives them the right so to do.
I wish to thank the Chancellor of the Exchequer and my right hon. Friend the President of the Board of Trade for the consideration that they have given to this matter so as to enable those industries, should they feel so disposed, to state their case before the Committee. With regard to the Opel car, I am not going to discuss its merits or demerits at this stage, but I will say this, that if the motor manufacturers find that they are at a disadvantage, they have the right, if this Clause goes through, to state their case before the Advisory Committee and they can be dealt with accordingly, and that applies to all


the other commodities that come within the category of the industries which were precluded from stating their case before the Committee. The industries as such are perfectly satisfied to have this concession given to them.

10.53 p.m.

Mr. Kingsley Griffith: In case the President of the Board of Trade should feel rather elated by the fact that on the last occasion he got such a wonderful combined Lobby I should like to point out to him that it is only the last speaker in this Debate who has really supported him at all. Every other speaker in every part of the Committee has been united on one thing, and that is in expressing complete lack of confidence in this particular procedure. And even the hon. Member who spoke above the Gangway said that these duties were being transferred for some reason hitherto unexplained, and therefore I presume he has not got very much confidence in them. As for the hon. Member for Hulme (Sir J. Nall), he was convinced beforehand that he was going to get an unsatisfactory result. Of course, different Members may approach the manner in which this board discusses these duties from different points of view. Some may feel that the duties are likely to be too high, and others that they are likely to be too low, while others, like the hon. Member for Barnstaple (Mr. Acland), feel that we do not get enough discussions on essential questions when they are before us.
But the whole result of the Debate does show that there is a feeling that this procedure through the Import Duties Advisory Committee starves the House of its proper control over the imposition of these duties. Whether tariffs are right or wrong has been for some years the subject of controversy, and doubtless will go on being so, but everybody will agree that they are an enormously important subject, and it has been one of my grievances against the trend of our politics that one important subject after another is taken out of the direct control of this House and put under some board or commission whose decisions we simply register. I was glad to hear the hon. Member for Hulme saying he would rather have had it in the Finance Bill. I do not know whether he noticed that that was exactly the proposal that we put forward on the last occasion when we only had 16 in the

Division Lobby. I did not look at the list, and perhaps his name was upon it.

Sir J. Nall: Does the hon. Gentleman suggest that he would start doubling the McKenna Duties?

Mr. Griffith: What I suggested was that this should be in the Finance Bill so that we should have a clear discussion in this House and hear the reasons for or against the issue whether the duties were to be higher or lower.

10.55 p.m.

Mr. Duncan: Unlike the last hon. Member, I support the new procedure. Some years' experience of the Import Duties Advisory Committee has convinced me that it has done essentially good work. I want particularly to call attention to an industry mentioned in the Clause which has not benefited from the McKenna Duties, whatever the reason may be, and that is the industry of watch-making. I happen to be the governor of an engineering college in Clerkenwell, the old watch-and-clock-making part of London. In the good old days we used to make watches and clocks for all England, but since the days of Swiss and American watches that has completely died out. The McKenna Duties have been on for some years with a tariff of 33⅓ per cent., but no watches are being made in this country, despite that fact, although there is a good deal of repair work being done. Here is a case in which there is a great opportunity for the Import Duties Advisory Committee to encourage the manufacture of watches in this country again.
Perhaps hon. Members for distressed areas would welcome another new industry, or rather an old industry renewed, which may have a good effect upon employment in this country. I imagine that the protective tariff would remain upon the parts of watches used for repairing, but I should like to see the Import Duties Advisory Committee take strong action to free the manufacture of watches until somebody comes along, puts down a plant, gets experts from abroad and teaches British industry watchmaking again. When this has been done, protect the industry as much as it requires it. Under the old McKenna procedure that was impossible, but under the new Import Duties procedure that will be possible, and I therefore support the Clause.

10.58 p.m.

Mr. Lyons: I rise for a moment to support my right hon. Friend the Chancellor of the Exchequer in the Clause which he has introduced. One has raised this matter on more than one occasion, and I venture to say that the industry and the workers who are employed in it will welcome the safeguards which are being provided by the Government. We have noticed for a long time that they have been put into danger by the increased importation of foreign cars into this country. That was in no way justified, and many of us think that the time is ripe to-night to offer our support to the Government wholeheartedly for their action in altering the machinery so as to provide for an increase of the tariff on these cars. We realise now that if the industry fails to protect itself it cannot be said to be the fault of His Majesty's Government. We welcome the readiness shown by His Majesty's Government in altering the machinery so as more efficiently to protect those employed in this industry. I am sure that we all support the Government in the step they have taken to give a reasonable measure of protection to an industry seriously threatened by increased importation from any foreign country, whose standards and conditions in this direction cannot be compared with our own. I want to say, on behalf of a large number of people in this industry, how much we appreciate the action of the Government in taking the steps they have taken in its support.

11.0 p.m.

Mr. Stanley: The challenge of the hon. Member for East Middlesbrough (Mr. K. Griffith) has called forth two doughty champions. I think that most hon. Members on this side of the Committee are prepared to support the Clause, and I do not think I am called upon at this late hour to defend, against the hon. Member for Dunfermline (Mr. Watson) and my hon. Friend the Member for Hulme (Sir J. Nall), in what I should say was a rather uneasy partnership, the work of the Import Duties Advisory Committee, though I should be prepared to defend the working of this system against anyone. I believe that experience has shown that the method adopted in 1932 has given to this country, as I think even those who do not believe in tariffs will agree, a cleaner and better method of protection than is

enjoyed by any other protectionist country in the world.
I cannot agree with the right hon. Gentleman that no explanation has been given as to why this proposal was brought forward. I did give an explanation on the previous occasion. What I think does require explanation now is why the duties are not separable. You cannot really distinguish between clocks, musical instruments, and motor cars, and all the other thousand and one commodities which now fall within the purview of the Import Duties Advisory Committee. If the system of protection is to be of any avail against the kind of trading conditions which we see growing up more and more on the Continent of Europe and elsewhere in the world to-day, surely we must have some more flexibility and celerity of action than is provided by a Finance Bill once a year, which enables the foreign competitor when the Third Reading of the Finance Bill has gone through, to say to himself, "I am safe for the next 11 months, and able to do whatever I like."
In reply to the specific question which was put to me with regard to motor cars, I would point out that motor cars are not the only subject referred to, but that other commodities are covered by the Clause, and I have already been receiving complaints about certain types of clocks which are also being affected by what is claimed to be subsidised competition. I do not think that the hon. Member for South Shields (Mr. Ede) can really have listened very carefully to the answers I have given recently to questions. I have said quite definitely that, according to my information, no direct Government subsidy has been granted, but I have also stated that I believe there is some kind of industrial pool from which a subsidy is drawn for particular commodities; and I believe, also, that to some extent manipulation of the exchanges helps the exporter. It is true that the maker of these cars in Germany is—I do not know whether to the full extent of the capital, but to some extent at any rate—an American firm. The right hon. Gentleman says that this is their way of getting capital out of Germany, but whether or not they are able to keep for themselves and use outside Germany all the exchange that they get from the sale of these motor cars, I do not know. I am very doubtful whether that is the case, but, at any rate, it does not seem to me to matter. We


are concerned with the potential employment which can be given by the manufacture of cars in this country, and if the competition is unfair we believe this tribunal should have a chance of pronouncing upon it, and that we should have a chance of putting that verdict before the House of Commons.
The hon. Baronet the Member for South West Bethnal Green (Sir P. Harris) raised two important points, to which, I think, he was justified in drawing attention. First, he asked for a guarantee that there should be a reasonable time in which any change could be considered by the House. I think the hon. Member will agree that wherever there has been a really important duty imposed, as for instance, the iron and steel duties, full opportunity for discussion has been given. I certainly agree with him that if, for instance, any change is proposed in the duty on motor cars, a departure of great importance, the House should have an opportunity of considering such a change at a reasonable hour and with reasonable time for discussion. With regard to the fullness of the report, the hon. Member will recollect that some time ago complaints were made by hon. Members that the reports of the Committee were too scanty and were not full enough of information. I promised at the time, or my right hon. Friend, who was then in another position, promised on my behalf, that I would bring this suggestion to the notice of the Import Duties Advisory Committee. Hon. Members will recognise that the Import Duties Orders a few weeks ago, after that suggestion had been made to the Committee, were accompanied by much fuller reports. and I think in that way gave satisfaction to the Committee.

Clause read a Second time, and added to the Bill.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to. —[Captain Hope.]

Committee report Progress: to sit again To-morrow.

Resolved,

Orders of the Day — GAS UNDERTAKINGS ACTS, 192o TO 1934.

Resolved
That the draft of a Special Order proposed to be made by the Board of Trade under the Gas Undertakings Acts, 1920 to 1934, on the application of the Corporation of the City of Glasgow and the Provost Magistrates and Councillors of the Royal Burgh of Renfrew, which was presented on the 14th day of June and published, be approved.

Resolved,
That the draft of a Special Order proposed to be made by the Board of Trade under the Gas Undertakings Acts, 1920 to 1934, on the application of the Hyde Gas Company, which was presented on the 14th day of June and published, be approved.

Resolved,
That the draft of a Special Order proposed to be made by the Board of Trade under the Gas Undertakings Acts, 1920 to 1934, on the application of the Runcorn Gas Company, which was presented on the 14th day of June and published, be approved subject to the following modifications:

Clause so, page 5, lines 17 and 18, leave out date of transfer,' and insert precribed date;'

Second Schedule, page 41, leave out lines 27 and 4s."—[Mr. Cross.]

Orders of the Day — ELECTRICITY SUPPLY ACTS.

Resolved,
That the Special Order made by the Electricity Commissioners under the Electricity (Supply) Acts, 1882 to 1936, and confirmed by the Minister of Transport under the Electricity (Supply) Act, 1919, in respect of the compulsory acquisition of servitudes or other rights for overhead main transmission lines in and over certain land situate at Garscube, in the parish of New Kilpatrick, in the county of Dunbarton, which was presented on the 25th day of May, 1938, be approved."—[Captain Austin Hudson.]

The remaining Orders were read, and postponed.

Orders of the Day — ADJOURNMENT.

Resolved, "That this House do now adjourn."—[Captain Hope.]

Adjourned accordingly at Thirteen Minutes after Eleven o' Clock.